Vehicle Scrappage and Gasoline Policy

Mark R. Jacobsen, Arthur A. van Benthem

NBER Working Paper No. 19055
Issued in May 2013
NBER Program(s):   EEE

We estimate the sensitivity of scrap decisions to changes in used car values - the "scrap elasticity" - and show how it influences used car fleets under policies aimed at reducing gasoline use. Large scrap elasticities will tend to produce emissions leakage under efficiency standards as the longevity of used vehicles is increased, a process known as the Gruenspecht effect. To explore the magnitude of this leakage we assemble a novel dataset of U.S. used vehicle registrations and prices, which we relate through time via differential effects in gasoline cost: A gasoline price increase or decrease of $1 alters the number of fuel-efficient vs. fuel-inefficient vehicles scrapped by 18%. These relationships allow us to provide what we believe are the first estimates of the scrap elasticity itself, which we find to be about -0.7. When applied in a model of fuel economy standards, the elasticities we estimate suggest that 13-23% of the expected fuel savings will leak away through the used vehicle market. This considerably reduces the cost-effectiveness of the standard, rivaling or exceeding the importance of the often-cited mileage "rebound" effect.

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Document Object Identifier (DOI): 10.3386/w19055

Published: Jacobsen, Mark R., and Arthur A. van Benthem. 2015. "Vehicle Scrappage and Gasoline Policy." American Economic Review, 105(3): 1312-38.

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