The End of the Express Road for Hybrid Vehicles: Can Governments’ Green Product Incentives Backfire?

Marketing Science, Forthcoming

56 Pages Posted: 2 Dec 2020

See all articles by Cheng He

Cheng He

Wisconsin School of Business

O. Cem Ozturk

University of South Carolina

Chris Gu

Georgia Institute of Technology

Jorge M. Silva-Risso

University of California, Riverside (UCR) - A. Gary Anderson Graduate School of Management

Date Written: November 4, 2020

Abstract

In response to growing environmental concerns, governments have promoted products that are less harmful to the environment—green products—through various incentives. We empirically study the impact of a commonly used non-monetary incentive, namely the single-occupancy permission to high-occupancy vehicle (HOV) lanes, on green and non-green product demand in the U.S. automobile industry. The HOV incentive could increase unit sales of green vehicles by enhancing their functional value through time-saving. On the other hand, the incentive may prove counterproductive if it reduces the symbolic value (i.e., signaling a pro-environmental image) consumers derive from green vehicles. Assessing the effectiveness of green-product incentives is challenging given the endogenous nature of governments’ incentive provisions. To identify the effect of the HOV incentive on unit sales of green and non-green vehicles, we take advantage of HOV incentive changes in two states, and we employ a multitude of quasi-experimental methods using a data set at the county-model-month level. Unlike previous studies that only examine the launch of the HOV incentive and find an insignificant association between incentive launch and green vehicle demand, we concentrate on its termination. We find that the termination of the HOV incentive decreases unit sales of vehicles covered by the incentive by 14.4%. We provide suggestive evidence that this significant negative effect of HOV incentive termination is due to the elimination of the functional value the incentive provides: time-saving. Specifically, we find that the negative effect is more pronounced in counties where consumers value timesaving more (i.e., counties with a longer commute to work and higher income). Additionally, in line with prior literature, the launch of the HOV incentive is not found to have a significant effect on green vehicle sales. Combined, our findings reveal that the effect of termination is not simply the opposite of that of launch, implying that governments’ green product incentives could backfire.

Keywords: sustainability, green products, public policy, government incentives, climate change, technology adoption, policy evaluation, quasi-experiments, difference-in-differences, coarsened exact matching

JEL Classification: M38,Q54,Q56,Q58

Suggested Citation

He, Cheng and Ozturk, O. Cem and Gu, Chris and Silva-Risso, Jorge M., The End of the Express Road for Hybrid Vehicles: Can Governments’ Green Product Incentives Backfire? (November 4, 2020). Marketing Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3725073

Cheng He (Contact Author)

Wisconsin School of Business ( email )

975 University Avenue
Madison, WI 53706
United States

O. Cem Ozturk

University of South Carolina ( email )

701 Main Street
Columbia, SC 29208
United States

Chris Gu

Georgia Institute of Technology ( email )

Atlanta, GA 30332
United States

Jorge M. Silva-Risso

University of California, Riverside (UCR) - A. Gary Anderson Graduate School of Management ( email )

Riverside, CA 92521
United States

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