Title: Welfare Impacts of Fuel Economy Regulation

Speaker: Junji Xiao, Chinese University of Hong Kong

Time: April 7th, 2017 15:00–16:15 

Venue: Conference Room 106B, Zhonghui Building (College of Economics, JNU)

About the speaker:

Junji Xiao Junji is a Professor of Economics with research interest in the fields of empirical industrial organization, environmental economics and China economy. His recent work has focused on Chinese automobile industry and explored such topics as the competition structure, the welfare effect of environmental policies and the vertical restraints of this industry. Before joining CUHK Business School, Prof. Xiao taught at Fudan University and Shanghai University of Finance and Economics, respectively. He was awarded the German DFG Fellowship in 2001. His research work has been published in such leading academic journals as Review of Economics and Statistics, International Economic Review, Journal of Economics & Strategy Management, Journal of Industrial Economics, as well as others.

Abstract:

China is by far the largest new vehicle market in the world and plays an increasingly important role in the world oil market. In order to push automakers to improve fuel economy technology and reduce fuel consumption and associated externalities such as local air pollution, China adopted the Corporate Average Fuel Consumption (CAFC) standards in 2012, requiring the sales weighted average corporate fuel consumption (liters/100km) to be below a firm-specific target. This study offers the first welfare analysis on China's fuel economy regulation by developing and estimating an equilibrium model of automobile market consisting of demand and supply sides. The demand side features consumers with heterogeneous preferences and the supply side consists of multi-product firms that make pricing and vehicle attribute decisions along the technological frontier. Our analysis shows that in the short-run, the CAFC regulation would: (1) reduce average vehicle prices and increase sales; (2) lead to reduction in firm profit but a much larger increase in consumer welfare; and (3) actually increase gasoline consumption and associated externalities.