May a Regulatory Incentive Increase WTP for Cars with a Fuel Efficiency Label? Estimating Regulatory Costs Through a Split-Sample DCE in New Delhi, India

Abstract

The Indian government is considering the adoption of fuel efficiency labels for cars. By means of a Discrete Choice Experiment (DCE), this paper assesses New Delhi's car buyers' preferences for such a label. Random parameters specifications yield a willingness to pay (WTP) of 4.93 thousand US dollars for a car with the best efficiency label. As a novelty, and by means of a split-sample approach, we test whether this WTP would increase due to an incentive described as a regulation restricting the number of days a car can be driven weekly unless the car is awarded the best efficiency label --- New Delhi's residents experienced a similar policy in January and April, 2016. This incentive increases the WTP by 51.5% --- from 4.93 to 7.48 thousand US dollars. These extra 2.55 thousand US dollars can be interpreted as regulatory costs and are close to the 2.96 thousand US dollars implicit in estimates reported by Blackman et al. (2018) in the context of the Mexican Hoy No Circula.

Keywords: fuel efficiency labels; regulatory costs; Discrete Choice Experiment; Willingness to Pay; Random Parameters Logit; Split-sample approach; New Delhi.