The Surprising Incidence of Tax Credits for the Toyota Prius

Sallee, James M.

doi:10.1257/pol.3.2.189

Cited by 95 publications

(84 citation statements)

References 20 publications

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“…Langer and McRae (2013) show that there is wide dispersion in experienced fuel economy of a set of drivers using identical vehicles. Sallee (2011b) shows that city ratings are, on average, 19 percent lower than highway ratings (equivalent to the difference between a Volkswagen Jetta and a Ford Crown Victoria). Drivers who drive mostly on the highway or mostly in the city will therefore have very different fuel consumption per mile, but the location of miles driven is unavailable.…”

Section: Energy Efficiency Valuation Uncertainty and Effort Costsmentioning

confidence: 99%

“…I compare this variation to transaction price variation, which both serves to contextualize the fuel cost magnitudes and acts as a proxy for variation in all other attributes. Transaction data are from an industry source that directly samples a large, representative sample of dealers across the 20 Sallee (2013) also includes an empirical analysis of home appliances. Inattention is probably less likely to be rational in the market for automobiles than in the market for many home appliances because fuel cost variation is greater for automobiles and because gasoline prices are arguably more salient than electricity prices.…”

Section: Inattention In the Automobile Marketmentioning

confidence: 99%

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Rational Inattention and Energy Efficiency

Sallee

2014

The Journal of Law and Economics

199

106

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This paper argues that it will often be rational for consumers to pay limited attention to energy efficiency when choosing among energy-consuming durable goods like automobiles or home appliances. The reason is that the proper valuation of energy efficiency requires time and effort, but differences in efficiency across products will rarely be pivotal to choice when consumers have strong preferences regarding other product attributes. The paper first explains why proper valuation of efficiency is difficult, even in the presence of government energy labels. It next develops a model that shows how to value additional information about energy efficiency in a discrete-choice context. It then uses data on automobiles to show that consumers experience only small welfare losses when forced to choose a car without detailed information about fuel costs. Finally, the paper discusses the implications of rational inattention for both economic research and public policy.

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Section: Energy Efficiency Valuation Uncertainty and Effort Costsmentioning

confidence: 99%

Section: Inattention In the Automobile Marketmentioning

confidence: 99%

Rational Inattention and Energy Efficiency

Sallee

2014

The Journal of Law and Economics

199

106

View full text Add to dashboard Cite

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“…There are some exceptions in economics, such as Sallee (2011), who essentially argues that consumers captured most of the incentives for the Toyota Prius, while the firm did not appropriate any of that surplus despite a binding production constraint. Sallee (2011) shows that there was a shortage of vehicles manufactured to meet demand when the Prius was launched. This reinforces our motivation for studying a newsvendor model in this context.…”

Section: Literature Reviewmentioning

confidence: 99%

“…At the root cause of both these problems is demand uncertainty. Sallee (2011) studied the supply shortages and customer wait lists shortly after Toyota launched the hybrid electric Prius in 2002. When launching a new product, it is hard to know how many units customers will request.…”

Section: Introductionmentioning

confidence: 99%

The Impact of Demand Uncertainty on Consumer Subsidies for Green Technology Adoption

2016

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This paper studies government subsidies for green technology adoption while considering the manufacturing industry's response. Government subsidies offered directly to consumers impact the supplier's production and pricing decisions. Our analysis expands the current understanding of the price-setting newsvendor model, incorporating the external influence from the government who is now an additional player in the system. We quantify how demand uncertainty impacts the various players (government, industry and consumers) when designing policies. We further show that for convex demand functions, an increase in demand uncertainty leads to higher production quantities and lower prices, resulting in lower profits for the supplier. With this in mind, one could expect consumer surplus to increase with uncertainty. In fact, we show this is not always the case and the uncertainty impact on consumer surplus depends on the trade-off between lower prices and the possibility of under-serving customers with high valuations. We also show that when policy makers such as governments ignore demand uncertainty when designing consumer subsidies, they can significantly miss the desired adoption target level. From a coordination perspective, we demonstrate that the decentralized decisions are also optimal for a central planner managing jointly the supplier and the government. As a result, subsidies provide a coordination mechanism.

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“…Pass-through = ΔNP / R * 100% studies have also looked at incentive pass-through specifically, focusing on, for example, federal tax credits for the Toyota Prius (Sallee, 2011), agricultural subsidies to farmland (Kirwan, 2009;Hendricks et al, 2012), and automobile manufacturer promotions (Busse et al, 2006). Though difference-in-difference and fixed-effects models are typically used in these regression analyses, few make the explicit connection between this work and the pass-through theory in public economics.…”

Section: Literature Reviewmentioning

confidence: 99%