Attribute-based Subsidies for Energy Efficient Products with Market Power
Time：9:00am - 10:30am, May 27th, 2021
Speaker：Panle Jia Barwick
Meeting ID：980 9640 9692
Attribute-based subsidies are commonly used to promote the diffusion of energy-saving technologies such as electric vehicles (EVs), solar panels or more efficient home appliances. Markets for these products often exhibit market power. The effectiveness and welfare impacts of these subsidies hinge not only on consumer preferences for product attributes and firm costs but also on the interaction of the subsidies with the market power. This paper examines consumer demand, product attribute choices, and welfare consequences under different subsidy designs. We first develop a stylized model to illustrate the interaction of attribute-based subsidies with market power and its implications on optimal policy choices. We then estimate an equilibrium model of vehicle market with endogenous product attributes using comprehensive data on China's vehicle market where EV subsidies are based on driving range. Our analysis shows that relative to flat subsidies, range-based subsidies incentivize automakers to downsize EVs, leading to a modest environmental gain at the expense of a large consumer welfare loss. In contrast, subsidies based on battery capacity or vehicle weight could have a large welfare gain by reducing the under-provision of these attributes due to market power. Our paper highlights the importance of incorporating market power considerations in designing attributes-based policies.
Panle Jia Barwick is a Professor of Industrial Organization, Applied Econometrics, and Applied Microeconomics in the Department of Economics at Cornell University. She serves as the Co-Director of Cornell Institute for China Economic Research (CICER). She is a faculty research associate at the National Bureau of Economic Research (NBER), an editorial board member of VoxChina, editor for the Journal of Industrial Economics, and associate editor for the Rand Journal of Economics and International Journal of Industrial Organization. Professor Jia has published in several leading economics journals, including American Economic Review, Econometrica, American Economic Journal: Microeconomics and American Economic Journal: Applied Economics. Professor Jia earned her doctor degree in Economics from Yale University in 2006.