Vehicle Scrappage and Gasoline Policy

37 Pages Posted: 18 May 2013 Last revised: 24 Jan 2022

See all articles by Mark R. Jacobsen

Mark R. Jacobsen

University of California, San Diego (UCSD) - Department of Economics; Stanford University

Arthur van Benthem

University of Pennsylvania - Business & Public Policy Department

Date Written: May 2013

Abstract

We estimate the sensitivity of scrap decisions to changes in used car values - the "scrap elasticity" - and show how it influences used car fleets under policies aimed at reducing gasoline use. Large scrap elasticities will tend to produce emissions leakage under efficiency standards as the longevity of used vehicles is increased, a process known as the Gruenspecht effect. To explore the magnitude of this leakage we assemble a novel dataset of U.S. used vehicle registrations and prices, which we relate through time via differential effects in gasoline cost: A gasoline price increase or decrease of $1 alters the number of fuel-efficient vs. fuel-inefficient vehicles scrapped by 18%. These relationships allow us to provide what we believe are the first estimates of the scrap elasticity itself, which we find to be about -0.7. When applied in a model of fuel economy standards, the elasticities we estimate suggest that 13-23% of the expected fuel savings will leak away through the used vehicle market. This considerably reduces the cost-effectiveness of the standard, rivaling or exceeding the importance of the often-cited mileage "rebound" effect.

Suggested Citation

Jacobsen, Mark R. and van Benthem, Arthur, Vehicle Scrappage and Gasoline Policy (May 2013). NBER Working Paper No. w19055, Available at SSRN: https://ssrn.com/abstract=2266721

Mark R. Jacobsen (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States

Stanford University ( email )

Stanford, CA 94305
United States

Arthur Van Benthem

University of Pennsylvania - Business & Public Policy Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6372
United States
215-898-3013 (Phone)

HOME PAGE: http://bepp.wharton.upenn.edu/profile/21174/

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