Essays in Industrial Organization and Environmental Policy

Abstract

The first chapter, coauthored with Sarah Armitage, examines the effects of state policy when markets are nationally standardized. When prices are uniform across states, state-level supply-side and demand-side tools, such as producer and consumer subsidies, generate different consumer prices and markups over marginal cost. We study the 2009–2017 electric vehicle industry, which received substantial support from state-level policies. Using a structural model of demand and supply in the new vehicle market, we compare the effects of an important state-level supply-side policy, the zero-emission vehicle mandate in California and nine other states, to those of a counterfactual demand-side policy that instead uses a consumer subsidy and tax. Holding fixed the regulator’s stated target, electric vehicle sales in regulated states, the demand-side policy generates higher consumer prices for most electric vehicles, resulting in lower consumer and total surplus. These results persist if electric vehicle product introduction is allowed to adjust. The second chapter, coauthored with Sarah Armitage, asks how policymakers seeking to support socially beneficial products should account for the costs and benefits of product variety. Using a model of electric vehicle product introduction, and estimates from the first chapter on demand and costs for new vehicles, we measure the social welfare effects of variety in the first generation of electric vehicles and ask whether a state-level policy to encourage electric vehicles aligned these social welfare effects with private incentives. We measure the effects of policy-induced variety on consumers across the income distribution, producers, and the environment. We then apply the model to study the variety effects of the counterfactual policy from the first chapter. The third chapter examines the credit banking and trading mechanisms used by state and federal vehicle regulations to reduce compliance costs. I document stylized facts from the zero emission vehicle and light-duty vehicle greenhouse gas credit markets: firms acquire credits even when they have large balances, and credit trades result in less concentrated balances across firms. I then develop a dynamic model of automakers who trade credits on a competitive market, but face a risk that the market will be unavailable. I then use the model to explore the effects of changes to credit trading and banking policy.