Journal
JOURNAL OF THE ASSOCIATION OF ENVIRONMENTAL AND RESOURCE ECONOMISTS
Volume 10, Issue 1, Pages 1-32Publisher
UNIV CHICAGO PRESS
DOI: 10.1086/720903
Keywords
carbon dioxide emission standards; fuel economy; vehicle quality; consumer welfare
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This study examines the impact of energy efficiency and carbon dioxide emissions standards on consumer durables, revealing that the standards have ambiguous effects on product attributes and can potentially undermine consumer welfare.
Energy efficiency and carbon dioxide emissions standards apply to many consumer durables, such as refrigerators and passenger vehicles. Welfare analysis of these standards is complicated by the fact that product manufacturers choose a wide range of product attributes, many of which are unobserved by the researcher. Whereas the literature has considered the effects of standards on product prices, energy efficiency, and perhaps one or two other attributes, we show that in a differentiated product market, standards can affect virtually any product attribute, and those effects have ambiguous implications for consumer welfare. This paper implements a novel strategy to estimate the causal welfare effects of standards on product attributes. Considering European carbon dioxide emissions standards for passenger vehicles, we find that these standards have reduced fuel consumption and emissions. However, the standards have unintentionally reduced vehicle quality, which undermines 26% of the welfare gains of the standards.
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