Clean air regulation and heterogeneity in US gasoline prices

    Authors

    U. Chakravorty; C. Nauges;A. Thomas

    Comments

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    Abbreviated Journal Title

    J.Environ.Econ.Manage.

    Keywords

    boutique fuels; Clean Air Act; environmental regulation; market; structure; product differentiation; MARKET POWER; AIRLINE INDUSTRY; PANEL-DATA; Business; Economics; Environmental Studies

    Abstract

    In order to improve public health in areas with air quality problems, the US Clean Air Act imposes a variety of federal regulations on gasoline, which have led to a proliferation of fuel blends known as "boutique fuels." More than 45 fuel blends are sold nationwide. We examine the effects of this program on wholesale gasoline prices. The methodological innovation in this study is the use of a regulatory distance measure as a proxy for measuring market power that arises from product differentiation. We find that Clean Air regulation increases gasoline prices by increasing the cost of refining, but more importantly, by creating regulatory "islands," it segments the market and increases the market power of firms. Our estimation controls for the potential endogeneity of the regulatory variables. We find that OLS techniques systematically underestimate the effect of regulation on gasoline prices. (c) 2007 Elsevier Inc. All rights reserved.

    Journal Title

    Journal of Environmental Economics and Management

    Volume

    55

    Issue/Number

    1

    Publication Date

    1-1-2008

    Document Type

    Article

    Language

    English

    First Page

    106

    Last Page

    122

    WOS Identifier

    WOS:000253064100007

    ISSN

    0095-0696

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