Car Notches: Strategic Automaker Responses to Fuel Economy Policy

55 Pages Posted: 18 Dec 2010 Last revised: 25 May 2013

See all articles by James Sallee

James Sallee

University of Michigan at Ann Arbor

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research (NBER)

Date Written: December 2010

Abstract

Notches --- where small changes in behavior lead to large changes in a tax or subsidy --- figure prominently in many policies, but have been rarely examined by economists. In this paper, we analyze a class of notches associated with policies aimed at improving vehicle fuel economy. We provide several pieces of evidence showing that automakers respond to notches in fuel economy policy by precisely manipulating fuel economy ratings so as to just qualify for more favorable treatment. We then describe the welfare consequences of this behavior and derive a welfare summary statistic applicable to many contexts.

Suggested Citation

Sallee, James and Slemrod, Joel B., Car Notches: Strategic Automaker Responses to Fuel Economy Policy (December 2010). NBER Working Paper No. w16604. Available at SSRN: https://ssrn.com/abstract=1727085

James Sallee (Contact Author)

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Room R5396
Ann Arbor, MI 48109-1234
United States
734-936-3914 (Phone)
734-763-4032 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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