Title

Clean air regulation and heterogeneity in US gasoline prices

Authors

Authors

U. Chakravorty; C. Nauges;A. Thomas

Comments

Authors: contact us about adding a copy of your work at STARS@ucf.edu

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

Share

COinS