Subsidy Phase-out and Consumer Demand Dynamics: Evidence from the Battery Electric Vehicle Market in China
Static models are often used in policy evaluation, yet a dynamic perspective is critical if the policy is targeted to durable goods and new technology. This paper quantifies the battery electric vehicle (BEV) subsidy program in China using quarterly sales data at model and city level data from 2016-2019. We build a structural model of dynamic demand and Bertrand Nash supply to study price elasticity, changes in production costs, and markup evolution. The model highlights four channels through which the subsidy program impacts the market: the temporary elasticity, the inter-temporary elasticity, and the multiplications effects through peer effects and learning by doing. The estimates suggest that the own-price elasticity to be 5.577 and the future price elasticity be 1.667. Combining those estimates, we simulate outcomes under four alternative subsidy schemes. Interestingly, a phase-out policy could be much cost-effective yet achieves similar sales promotion than alternative policies with larger subsidies and more prolonged periods. Our study highlights the importance of using short-term policies to support emerging markets of durable goods.
Li Zhao is an associate professor in the department of economics, Antai college of economics and management, Shanghai Jiao Tong University. She received her Ph.D. from Vanderbilt University. Her research interests include auctions, empirical industrial organization, and the econometrics of games. She has published papers in journals such as the Rand Journal of Economics.
能源经济学研讨会（Energy Economics Seminar）由中国人民大学应用经济学院能源经济系定期推出，旨在为研究中国能源经济问题的学者提供交流的平台。