class: center, middle, inverse, title-slide # Econ 330: Urban Economics ## Lecture 14 ### John Morehouse ### May 19th --- class: inverse, center, middle # Lecture XVI: Automobiles, continued --- name: schedule # Schedule ## Today -- 1) .hi.purple[Collisions] 2) .hi.purple[Energy-Efficient Vehicles (EEVs)] -- -- --- # Externalities: ## Last time: 0. People in the US own a lot of cars --- count: false # Externalities: ## Last time: 0. People in the US own a lot of cars 1. Many externalities from driving 2. Congestion and solutions --- count: false # Externalities: ## Last time: 0. People in the US own a lot of cars 1. Many externalities from driving 2. Congestion and solutions ## Today - Collisions --- count: false # Externalities: ## Last time: 0. People in the US own a lot of cars 1. Many externalities from driving 2. Congestion and solutions ## Today - Collisions - Energy Efficient Vehicle Subsidies (and why we care about them in Urban Econ) --- # Cost of Collisions ## Direct Costs --- count: false # Cost of Collisions ## Direct Costs - 3.1 million injuries - 40,000 deaths - $300 billion --- count: false # Cost of Collisions ## Direct Costs - 3.1 million injuries - 40,000 deaths - $300 billion ## Indirect Costs - .hi[External costs] (via congestion) --- count: false # Cost of Collisions ## Direct Costs - 3.1 million injuries - 40,000 deaths - $300 billion ## Indirect Costs - .hi[External costs] (via congestion) - 4.4 cents per mile - 5 billion USD lost from accident delays (estimated) --- # Vehicle Safety Act of 1966 VSA of 66 mandated all vehicles include: --- count: false # Vehicle Safety Act of 1966 VSA of 66 mandated all vehicles include: 1. Seat belts 2. Head Restraints --- count: false # Vehicle Safety Act of 1966 VSA of 66 mandated all vehicles include: 1. Seat belts 2. Head Restraints 3. Shatter-proof windshields 4. Collapsible steering column --- count: false # Vehicle Safety Act of 1966 VSA of 66 mandated all vehicles include: 1. Seat belts 2. Head Restraints 3. Shatter-proof windshields 4. Collapsible steering column __Question:__ What changes in behavior should we expect? .hi.puprle[Discuss] --- # Vehicle Safety Act of 1966 ## Consequences 1. Only a small reduction in death rates from automobile collisions --- count: false # Vehicle Safety Act of 1966 ## Consequences 1. Only a small reduction in death rates from automobile collisions 2. Rate at which collisions occurred increased --- count: false # Vehicle Safety Act of 1966 ## Consequences 1. Only a small reduction in death rates from automobile collisions 2. Rate at which collisions occurred increased 3. Death rate for pedestrians and bicyclists increased --- count: false # Vehicle Safety Act of 1966 ## Consequences 1. Only a small reduction in death rates from automobile collisions 2. Rate at which collisions occurred increased 3. Death rate for pedestrians and bicyclists increased __Question__: Should we be surprised? Why might this have happened? .hi.purple[Discuss] --- # Vehicle Safety Act of 1966 These consequences are indeed foreseeable. What happened? --- count: false # Vehicle Safety Act of 1966 These consequences are indeed foreseeable. What happened? - Marginal cost of driving recklessly decreased --- count: false # Vehicle Safety Act of 1966 These consequences are indeed foreseeable. What happened? - Marginal cost of driving recklessly decreased - Conditional on being in an accident, you were now more likely to survive --- count: false # Vehicle Safety Act of 1966 These consequences are indeed foreseeable. What happened? - Marginal cost of driving recklessly decreased - Conditional on being in an accident, you were now more likely to survive - So more people drove recklessly, then everything else follows (more accidents, more peds/bicyclists killed) --- #VSA: Graph <img src="lecture_14_files/figure-html/vsa-1.svg" style="display: block; margin: auto;" /> .hi.purple[MC no VSA] --- count: false #VSA: Graph <img src="lecture_14_files/figure-html/vsa3-1.svg" style="display: block; margin: auto;" /> .hi.purple[MC no VSA] .hi[MC VSA] --- # So what? So what can we do? --- count: false # So what? So what can we do? ## Pigou strikes again --- count: false # So what? So what can we do? ## Pigou strikes again - Vehicle miles traveled (VMT) tax: tax per mile driven --- count: false # So what? So what can we do? ## Pigou strikes again - Vehicle miles traveled (VMT) tax: tax per mile driven - Include external collision cost per mile - Shuts down gap between social cost and private cost of driving --- # Pigou strikes again: Graph <img src="lecture_14_files/figure-html/pigou-1.svg" style="display: block; margin: auto;" /> - Marginal external cost is gap between MSC and MPC. - Pigouvian tax: set tax equal to size of gap. e,g: MPC + tax = MSC --- class: inverse, middle # Checklist .col-left[ 1) .hi[Collisions] ✅ 2) .hi.purple[EEVs] ] --- # Carbon Emissions Last externality we will discuss: -- ## Carbon Emissions from Driving -- - Solutions: 1. Energy Efficient Vehicle (EEVs) Subsidies 2. Gasoline (or carbon) tax 3. VMT tax --- #EEVs <img src="figures/musk.jpg" width="90%" height="90%" style="display: block; margin: auto;" /> --- #EEVs <img src="figures/uber.jpg" width="90%" height="90%" style="display: block; margin: auto;" /> --- # EEVs So what's all the hype? --- count: false # EEVs So what's all the hype? - Energy-efficient vehicles consume less gasoline per mile traveled --- count: false # EEVs So what's all the hype? - Energy-efficient vehicles consume less gasoline per mile traveled - Private fixed cost is usually higher, but variable cost is lower --- count: false # EEVs So what's all the hype? - Energy-efficient vehicles consume less gasoline per mile traveled - Private fixed cost is usually higher, but the variable cost is lower - e.g. Sticker price for EEV is more, but cheaper to drive --- count: false # EEVs So what's all the hype? - Energy-efficient vehicles consume less gasoline per mile traveled - Private fixed cost is usually higher, but the variable cost is lower - e.g. Sticker price for EEV is more, but cheaper to drive - Social cost is lower (fewer carbon emissions per mile driven) --- # EEVs .hi.purple[Question]: If an individual switches from an SUV to a prius, will their carbon emissions from driving fall? .hi.purple[Discuss] -- _Key Assumption_: We can be certain carbon emissions fall if the individual drives the same amount with both cars - Is this a reasonable thing to assume? -- - Probably not, as the cost per mile driven is less than the SUV --- # EEVs __Key Insight__: -- <center> <font size="15"> People drive more when it becomes cheaper to do so </font> </center> -- .hi.purple[Questions]: 1. What happens to congestion if we subsidize electric/hybrid vehicles? 2. What happens to carbon emissions? --- # EEVs: Congestion Graph --- # EEVs: Subsidy Graph --- # EEVs: Carbon Emissions Predicting carbon emissions is tougher --- count: false # EEVs: Carbon Emissions Predicting carbon emissions is tougher 1. If we subsidize .hi[hybrid vehicles] - Lower `\(CO_2\)`/mile but more miles...so unclear --- count: false # EEVs: Carbon Emissions Predicting carbon emissions is tougher 1. If we subsidize .hi[hybrid vehicles] - Lower `\(CO_2\)`/mile but more miles...so unclear 2. If we subsidize .hi[electric vehicles] - Depends where electricity comes from - Some electricity is very `\(CO_2\)` intensive, others not --- count: false # EEVs: Carbon Emissions Predicting carbon emissions is tougher 1. If we subsidize .hi[hybrid vehicles] - Lower `\(CO_2\)`/mile but more miles...so unclear 2. If we subsidize .hi[electric vehicles] - Depends where electricity comes from - Some electricity is very `\(CO_2\)` intensive, others not In either case: what key __elasticity__ might you be interested in knowing to answer this question? --- # EEVs: Carbon Emissions Want 1. miles driven to the price of hybrid vehicles and 2. Average carbon emissions of all vehicles driven to a change in the price of EEVs .hi.slate[Example]: --- count: false # EEVs: Carbon Emissions Want 1. miles driven to the price of hybrid vehicles and 2. Average carbon emissions of all vehicles driven to a change in the price of EEVs .hi.slate[Example]: - Suppose `\(\varepsilon_{\text{miles,price EEV}} = -3\)` - As the price of a hybrid falls by 1%, the miles driven increases by 3% --- count: false # EEVs: Carbon Emissions Want 1. miles driven to the price of hybrid vehicles and 2. Average carbon emissions of all vehicles driven to a change in the price of EEVs .hi.slate[Example]: - Suppose `\(\varepsilon_{\text{miles,price EEV}} = -3\)` - As the price of a hybrid falls by 1%, the miles driven increases by 3% - We are saying people will drive more in EEVs relative to regular cars. Price falls, more people buy/drive EEVs so total mileage goes up - Assume `\(\varepsilon_{\text{CEPM ,price EEV}} = .1\)`: CEPM is __C__arbon __E__missions __P__er __M__ile - --- count: false # EEVs: Carbon Emissions Want 1. miles driven to the price of hybrid vehicles and 2. Average carbon emissions of all vehicles driven to a change in the price of EEVs .hi.slate[Example]: - Suppose `\(\varepsilon_{\text{miles,price EEV}} = -3\)` - As the price of a hybrid falls by 1%, the miles driven increases by 3% - We are saying people will drive more in EEVs relative to regular cars. Price falls, more people buy/drive EEVs so total mileage goes up - Assume `\(\varepsilon_{\text{CEPM ,price EEV}} = .1\)`: CEPM is __C__arbon __E__missions __P__er __M__ile - Why is the sign different (+)? Price of eev falls `\(\implies\)` more people drive EEVs `\(\implies\)` average carbon intensity of cars on road fall (so they move in the same direction) --- # Example, continued Ok, so we had `\(\varepsilon_{\text{miles,price EEV}} = -3\)`, and `\(\varepsilon_{\text{CEPM ,price EEV}} = 1\)` --- count: false # Example, continued Ok, so we had `\(\varepsilon_{\text{miles,price EEV}} = -3\)`, and `\(\varepsilon_{\text{CEPM ,price EEV}} = 1\)` .qa[Question]: Before an EEV subsidy, the total miles driven in a city was 1000 and the carbon emissions per mile is 2 lbs. --- count: false # Example, continued Ok, so we had `\(\varepsilon_{\text{miles,price EEV}} = -3\)`, and `\(\varepsilon_{\text{CEPM ,price EEV}} = 1\)` .qa[Question]: Before an EEV subsidy, the total miles driven in a city was 1000 and the carbon emissions per mile are 2 lbs. - What happens to overall emissions when the government subsidizes EEV's leading to a 1% decrease in the equilibrium price? --- count: false # Example, continued Ok, so we had `\(\varepsilon_{\text{miles,price EEV}} = -3\)`, and `\(\varepsilon_{\text{CEPM ,price EEV}} = 1\)` .qa[Question]: Before an EEV subsidy, the total miles driven in a city was 1000 and the carbon emissions per mile are 2 lbs. - What happens to overall emissions when the government subsidizes EEV's leading to a 1% decrease in the equilibrium price? __Total Emissions Prior__: `\(1000*2 = 2000 \text{lbs}\)` --- count: false # Example, continued Ok, so we had `\(\varepsilon_{\text{miles,price EEV}} = -3\)`, and `\(\varepsilon_{\text{CEPM ,price EEV}} = 1\)` .qa[Question]: Before an EEV subsidy, the total miles driven in a city was 1000 and the carbon emissions per mile are 2 lbs. - What happens to overall emissions when the government subsidizes EEV's leading to a 1% decrease in the equilibrium price? __Total Emissions Prior__: `\(1000*2 = 2000 \text{lbs}\)` - Miles after: `\(1000*1.03 = 1,030\)` (price goes down so miles go up) --- count: false # Example, continued Ok, so we had `\(\varepsilon_{\text{miles,price EEV}} = -3\)`, and `\(\varepsilon_{\text{CEPM ,price EEV}} = 1\)` .qa[Question]: Before an EEV subsidy, the total miles driven in a city was 1000 and the carbon emissions per mile are 2 lbs. - What happens to overall emissions when the government subsidizes EEV's leading to a 1% decrease in the equilibrium price? __Total Emissions Prior__: `\(1000*2 = 2000 \text{lbs}\)` - Miles after: `\(1000*1.03 = 1,030\)` (price goes down so miles go up) - Emissions per mile after: `\(2*.99 = 1.98\)` --- count: false # Example, continued Ok, so we had `\(\varepsilon_{\text{miles,price EEV}} = -3\)`, and `\(\varepsilon_{\text{CEPM ,price EEV}} = 1\)` .qa[Question]: Before an EEV subsidy, the total miles driven in a city was 1000 and the carbon emissions per mile are 2 lbs. - What happens to overall emissions when the government subsidizes EEV's leading to a 1% decrease in the equilibrium price? __Total Emissions Prior__: `\(1000*2 = 2000 \text{lbs}\)` - Miles after: `\(1000*1.03 = 1,030\)` (price goes down so miles go up) - Emissions per mile after: `\(2*.99 = 1.98\)` __Total Emissions Post__: `\(1,030 * 1.98 = 2,039.4 \text{lbs}\)` So total emissions went _up_ 🤯 (in this example) --- # Evidence Newer evidence of distributional concerns over EEV subsidies<sup>.hi[†]</sup> .footnote[ .hi[†] This comes from a study done by [Holland et. al](https://www.nber.org/papers/w21291) ] --- count: false # Evidence Newer evidence of distributional concerns over EEV subsidies<sup>.hi[†]</sup> .footnote[ .hi[†] This comes from a study done by [Holland et. al](https://www.nber.org/papers/w21291) ] __Basic idea__: energy demand increases, but gasoline demand falls --- count: false # Evidence Newer evidence of distributional concerns over EEV subsidies<sup>.hi[†]</sup> .footnote[ .hi[†] This comes from a study done by [Holland et. al](https://www.nber.org/papers/w21291) ] __Basic idea__: energy demand increases, but gasoline demand falls - Poorer individuals live near power plants (negative amenity) --- count: false # Evidence Newer evidence of distributional concerns over EEV subsidies<sup>.hi[†]</sup> .footnote[ .hi[†] This comes from a study done by [Holland et. al](https://www.nber.org/papers/w21291) ] __Basic idea__: energy demand increases, but gasoline demand falls - Poorer individuals live near power plants (negative amenity) - Higher electricity demand deteriorates air quality around power plants - will vary by type of plant. If you have clean energy, this isn't a concern --- count: false # Evidence Newer evidence of distributional concerns over EEV subsidies<sup>.hi[†]</sup> .footnote[ .hi[†] This comes from a study done by [Holland et. al](https://www.nber.org/papers/w21291) ] __Basic idea__: energy demand increases, but gasoline demand falls - Poorer individuals live near power plants (negative amenity) - Higher electricity demand deteriorates air quality around power plants - will vary by type of plant. If you have clean energy, this isn't a concern --- class: inverse, middle # Checklist .col-left[ 1) .hi[Collisions] ✅ 2) .hi[EEVs] ✅ ] --- exclude: true <!-- --- --> <!-- exclude: true --> <!-- ```{R, generate pdfs, include = F} --> <!-- system("decktape remark 02_goodsmarket_part1.html 02_goodsmarket_part1.pdf --chrome-arg=--allow-file-access-from-files") --> <!-- ``` -->