This note presents an analytical approach that has recently been developed and draws heavily on RAND/N--1005-NSF, Evaluating Fuel Economy Mandates: An Exploratory Cost-Benefit Analysis, which deals with fuel economy mandates; the analysis presented here emphasizes excise taxes and subsidies. This approach uses an analytical simulation model of the automobile industry. It assumes that the domestic automobile industry acts as if it were a single entity maximizing the joint profits of its members. Although the monopoly assumption does not do full justice to the actual price-leadership form of oligopoly in the domestic market, it provides insights that are obscured in most other studies by the (usually implicit) assumption of purely competitive markets. An alternative model in which the auto firms are assumed to compete vigorously is analyzed in an appendix and validates our major conclusions. Three sizes of cars are modeled as representative of the output of the industry, and the industry is assumed to select the prices and fuel economies for these cars in a way that maximizes long-run profits. The model was initially fitted to 1976 market information when there was no fuel-economy regulation. Specific tax programs were then formulated and the model's parameters were used to estimate the resulting equilibrium changes in prices, costs, sales, profits, individual and aggregate fuel economies, and taxes collected by the government. It is strictly a long-run analysis; each solution of the model represents a set of market values for the year 1985.

  • Corporate Authors:

    RAND Corporation

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    Department of Energy

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  • Authors:
    • Stucker, J
  • Publication Date: 1979-10

Media Info

  • Pagination: 59 p.

Subject/Index Terms

Filing Info

  • Accession Number: 00318367
  • Record Type: Publication
  • Source Agency: National Technical Information Service
  • Contract Numbers: EX-76-C-01-2337
  • Files: TRIS
  • Created Date: Sep 16 1981 12:00AM