Applied Microeconomics | Industrial Organization: Roadblock or Accelerator? The Effect of Electric Vehicle Subsidy Elimination

Abstract: Federal and state governments in many countries subsidize early adopters of electric vehicles (EVs) to promote green technology. These programs use different approaches such as quotas and deadlines to end the subsidies, creating complicated incentives for car manufacturers. This paper demonstrates the complex effect of the elimination designs on the EV market penetration, prices, and welfare in the US electric vehicle market. I develop a structural model of the consumer vehicle choice and manufacturer's pricing decisions in the US automobile industry. I estimate the model using industry data from 2011-2017 on new vehicle registrations, prices, characteristics, and subsidies to identify demand elasticities, network effects, and marginal costs. Based on the model primitives, I conduct counterfactual simulations to compare alternative subsidy elimination designs for EV market penetration, prices, and welfare.

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