GREENCAR - Green Transition of the Car Fleet

Transitioning the car fleet to zero emission vehicles will take decades and will require a series of large tax reforms. Quantitative policy analysis tools are needed to guide policy.

Decorative: Green car

The car market is challenging to model. The main issues are that the choice set is very large, there is lots of heterogeneity and very complex substitution patterns. Cars are durable goods, used cars are traded in a secondary market. Households substitute usage between cars and may use zero emission vehicles for different purposes, such as shorter trips. Car prices are endogenous: producers set prices strategically in response to the incentives provided by the tax regime.

The GREENCAR research team contributes at the research frontier of empirical industrial organization and discrete choice econometrics with models and methods for high-dimensional and complex settings. The team develops models that can be used to guide policy in the green transition.

 

Utilizing the high quality Danish register data, the GREENCAR team develops new quantitative policy analysis tools. The policy analysis tools developed, as well as the insights gained about the car market, can contribute substantially to the green transition, guiding policy by quantifying a range of effects of tax reforms. This will enable policy makers to design reform steps over the coming decades that ensure a speedy transition while meeting goals regarding tax revenues, mobility and inequality.

A large share of CO2 emissions are due to fossil fuel passenger cars. The car market is hence a major target for climate policy. Regulating the car market not only impacts emissions but also tax revenues, spatial mobility and inequality. Moreover, the car market itself is extremely complex: Cars are very heterogeneous durable goods with an important second-hand market. Emissions are directly related to usage rather than just to holdings, which means household interactions play a role. Producers set prices strategically.

These complexities imply that policy mistakes are likely, as evidenced by the current explosion in the sales of plugin hybrids (in Denmark) and the consequent loss of tax revenues for little environmental gain. The project contributes to the green transition by predicting the consequences of policies that regulate the car market. This enables policy mistakes to be avoided and helps policy makers balance conflicting environmental, social and economic goals.

 

Subproject 1: Car ownership model

In the first SP, we develop a core model and deal with generic issues that are also relevant in subsequent three SPs that extend the core model in different directions. We develop a GEM for car ownership with the very popular BLP model as benchmark.
The GEM structure allows the many different car variants to be described by their location in a multidimensional type space. Similar cars are located near each other and will be closer substitutes. The endogeneity of prices will be dealt with using instrumental variables.

Subproject 2: Ownership and use

This subproject integrates the use dimension into a car ownership model, estimated using the Danish vehicle inspection data. The discrete choice framework employed in the current state of the art is replaced with one based on GEM, which maintains the advantages of a GEM formulation discussed above. This will be a substantial contribution to the literature.

Subproject 3: Multi-car households

This subproject develops a GEM to predict portfolio aspects of household car choice. This is first-order, since portfolio aspects are of particular importance for electric vehicle adoption [30]. As demanded for practical policy analysis, the proposed model will allow a far greater degree of realism and richness than has been possible so far.

SP 4: Dynamic equilibrium

SP4 develops a new generation of models that allows for a complete dynamic analysis of the entire car market, by explicitly accounting for the strategic interaction between the markets for new as well as used cars. To do this, we combine two state-of-the-art modeling frameworks:

1) the BLP framework which is the static workhorse for empirical analysis of the demand and supply of new cars and

2) a new rich empirical framework developed by where used vehicles of multiple types (e.g. makes and models) are traded in the secondary market by heterogeneous consumers

 

 

 

Researchers

Name Title Job responsibilities Image
Anders Munk-Nielsen Assistant Professor - Tenure Track Empirical Industrial Organization; Structural Microeconometrics; Health Economics; Discrete Choice; Transportation Economics Billede af Anders Munk-Nielsen
Bertel Schjerning Professor Dynamic Discrete Choice Models; Dynamic Equilibrium Models; Dynamic Games with Multiple Equilibria; Computational Methods; Structural Estimation Billede af Bertel Schjerning
Maria Juul Hansen Assistant Professor Structural microeconometrics, dynamic programmering, urban economics, location choice, labour economics Billede af Maria Juul Hansen
Mogens Fosgerau Professor Economics of Transportation; Congestion; Information and Entropy; Discrete Choice Econometrics Billede af Mogens Fosgerau
Nikolaj Nielsen Postdoc Microeconometrics, dynamic programming, economics of education, discrete choice econometrics, demand estimation Billede af Nikolaj Nielsen

Funded by:Independent Research Foundation Denmark

Project: GREENCAR - Green Transition of the Car Fleet
Period: September 2022 - September 2026

Contact

PI Mogens Fosgerau

External members:

Name Title Phone E-mail
John Rust Professor, Georgetown University
Fedor Iskhakov Professor, Australian National University
Kenneth Gillingham Associate Professor, Yale University
Dennis Kristensen Professor, University College London
Robert A. Miller Professor, Carnegie Mellon University
Matthew Shum Professor, California Institute of Technology