Job Market Paper: “Regulatory Mandates and Electric Vehicle Product Variety” (with Sarah Armitage)
Abstract: When should policies to encourage new types of products use supply-side tools, like regulations and mandates, and when should they use demand-pull tools like consumer incentives? We study an important supply-side policy in the early electric vehicle industry: the zero-emission vehicle mandate in California and nine other states. Focusing on the 2009–17 period, we examine the interaction between imperfect competition and endogenous product entry. After showing that firms internalized much of the social benefit of entry under the mandate, we evaluate a counterfactual policy that replaces the mandate with a demand-pull subsidy and tax regime. Holding fixed the regulator’s stated target, electric vehicle sales in regulated states, the demand-pull policy creates a weaker incentive for socially beneficial product entry and generates lower consumer and total surplus. When fewer products are introduced, producers avoid entry costs, but forego long run benefits of entry.