ABSTRACT

Since the Clean Air Act Amendments of 1970, new automobiles have had to comply with a series of increasingly stringent pollution control standards. The impact of these standards has been significant since an early 1980s car emits less than 10% of the pollutants of an uncontrolled 1967 model. Demand is more income elastic for newer cars than for older ones, so that an increase in income shifts the demand curves for newer and older cars disproportionately. The Clean Air Act Amendments of 1970 were the key federal legislation affecting automobile emissions control. Demand equations for automobiles that are estimated without regard for the endogeneity of price and quantity may be misspecified, in which case a simultaneity bias may be present. Initial regulations that are overambitious or are implemented in a myopic fashion would be likely to create a pattern of costs that starts very high and falls as cost-effective technology replaces stop-gap technology.