ABSTRACT
In November 1989 the Mexico City administration imposed a regulation banning each car from driving a specific day of the week. Called Hoy no circula, the “Day without a Car” regulation specifies that cars with license plate numbers ending with digits 0 or 1 do not drive on Monday, 2 or 3 do not drive on Tuesday, and so on. Restrictions do not apply on weekends. When a trip is sacrificed due to an increase in the tax on gasoline, the value of the sacrificed unit to the consumer is the retail price of gasoline. Thus although some inframarginal units of gasoline are worth more to consumers, a higher gasoline tax systematically screens out the trips that are worth the least. With the rationing mechanism used in Mexico City, issues are slightly more complex because the effects on demand are not known. Households must allocate their scarce resources across durable goods, non-durable goods, and savings.
