Regulating Automobile Pollution under Certainty, Competition, and Imperfect Information

This paper studies an integrated economic model of automobile emissions that incorporates consumer mileage, automobile feature, and fuel content choices. Subject to informational constraints that bind the government, optimal regulatory policies are shown to include fuel content standards, gasoline taxes, and direct automobile regulation or taxation. Optimal automobile taxes are tied to the mileage that regulators can anticipate will be driven on a given car. In dynamic environments, constrained efficiency can be achieved by periodic automobile taxes or, under some circumstances, a combination of new car regulation and accelerated vehicle retirement subsidies. Desired properties of vehicle retirement programs are discussed.