ABSTRACT
Differentiated regulation occurs when a regulatory authority applies different regulatory criteria across subgroups of a regulated sector. An extreme form of differentiation, grandfathering, fixes regulatory standard for each regulated unit as of its entry date. Regulation affects fleet composition through its impact on purchase and scrapping decisions. Consider the scrapping decisions made by an optimizing individual who consumes both nondurables and the service of autos and other durables. The total cost penalty estimate may be used in conjunction with scrappage elasticity estimates derived from the regression analysis to calculate the effect of the adoption of more stringent new car standards on scrapping rates. These changes are not large. However, given the wide disparity in emissions rates across vintages, they exert a significant effect on short run emissions outcomes. One lesson for regulatory analysts is that both technical factors, such as emission rates for each type of capital, and economic factors, such as scrapping decisions, are important determinants of regulatory outcomes.
