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-side tools like consumer incentives? When prices are set nationally but policy varies by state, supply-side and demand-side tools are no longer equivalent. We study an important state-level 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 two channels for policy effects: imperfect competition and endogenous product entry. Using a structural model of new vehicle pricing, demand, and product entry, we compare the mandate to a counterfactual demand-side policy that instead uses a consumer subsidy and tax. Holding fixed the regulator’s stated target, electric vehicle sales in regulated states, the demand-side 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.