No Longer Riding Dirty: The Effect of Electric Vehicle Subsidies on the Diffusion of Emerging Technologies in Automobile Markets

46 Pages Posted: 7 May 2019 Last revised: 19 Dec 2019

See all articles by Xi Wu

Xi Wu

Temple University

Jing Gong

University of Virginia - McIntire School of Commerce

Brad N. Greenwood

George Mason University - Department of Information Systems and Operations Management

Yiping (Amy) Song

NEOMA Business School

Date Written: April 16, 2019

Abstract

Global efforts to stymie greenhouse gas emissions have been diverse and multifaceted; with limiting carbon emissions from internal combustion automobiles being implicated as a key tactic. In this work, we examine one approach taken by governments to steer consumers away from traditional vehicles and accelerate the diffusion of green technologies: subsidizing the purchase of electric automobiles. While many subsidies have accelerated the diffusion of EVs, the source of the change in purchase behavior remains unknown. On the one hand, as policymakers hope, such subsidies might be cannibalizing established fossil-fuel vehicle markets, i.e. cannibalization. On the other hand, new markets might be emerging as a result of purchases made by customers who otherwise would not have purchased a vehicle, i.e. market expansion. Leveraging the phased rollout of an electric vehicle subsidy in China, we find that subsidies strongly encourage EV purchase, but yield no notable effect on traditional vehicle purchasing. This suggests a market expansion effect and undermines the efficacy of subsidies in slowing traditional vehicle sales; indicating that while subsidies can accelerate the diffusion and adoption of de novo technologies, the abandonment of outmoded technologies is not guaranteed. Further, we find these effects are moderated by non-pecuniary motivations, viz. air pollution. Theoretical and practical implications are discussed within.

Keywords: electric vehicles, government subsidy, difference in difference, automobile purchase

Suggested Citation

Wu, Xi and Gong, Jing and Greenwood, Brad and Song, Yiping, No Longer Riding Dirty: The Effect of Electric Vehicle Subsidies on the Diffusion of Emerging Technologies in Automobile Markets (April 16, 2019). Available at SSRN: https://ssrn.com/abstract=3373096 or http://dx.doi.org/10.2139/ssrn.3373096

Xi Wu

Temple University ( email )

1810 N. 13th Street
Floor 2
Philadelphia, PA 19128
United States

Jing Gong

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

Brad Greenwood (Contact Author)

George Mason University - Department of Information Systems and Operations Management ( email )

4400 University Drive
Fairfax, VA 22030
United States

Yiping Song

NEOMA Business School ( email )

59 rue Pierre Taittinger
Reims, 51061
France

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