We investigate the effectiveness of various tax instruments in correcting the environmental externalities (CO2 emissions, accidents, local and non-exhaust pollutants) in the Norwegian car market. Utilizing a model of household decisions on vehicle purchase and kilometers driven, we find that vehicle demand is highly responsive to price, with an estimated price elasticity of -3.8. Driving behavior is less sensitive to per-kilometer costs, with estimated elasticities ranging between -0.4 and -0.5. A central finding of the study is the critical role of market power; multi-product manufacturers set sizable markups (≈ 30%) that significantly exceed social marginal costs and curtail new-car sales. Furthermore, the analysis reveals that accounting for driving heterogeneity and spatial heterogeneity is essential for addressing distributional concerns in policy design. While Norway’s current regime of high registration taxes and broad electric vehicle (EV) exemptions successfully drove adoption, there seems to be a road for improvement; it performs worse than a no-tax benchmark due to fiscal costs and distorted allocations. Additionally, while weight-based taxes can target non-exhaust emissions, the engine type remains the primary driver of external costs, and corrective measures must be carefully balanced against existing market power distortions.
Private Marketplaces (PMPs) have grown rapidly in programmatic advertising, yet observed PMP price premia and adoption patterns are difficult to interpret because publishers allocate heterogeneous impressions across marketplaces using information that is not observed by researchers. We develop a supply-side model in which publishers choose whether to participate in RTB and/or PMP (extensive margin) and, conditional on participation in both, allocate impressions between channels (intensive margin). Observed daily average prices are corrected for quality-based selection using inverse Mills ratios, yielding latent, quality-adjusted price indices. We embed these latent indices in a dynamic factor model to capture aggregate shocks and heterogeneous product exposure. The model quantifies the role of selection in observed PMP pricing, estimates marketplace supply elasticities, and provides a decomposition-ready framework for understanding PMP growth under platform and privacy shocks.
Many controversies that beset the digital economy turn on the role of advertising and its use of personal data. We document several new stylised facts about the global digital advertising marketplace and examine the trade-off between privacy and ad targeting accuracy from the advertisers’ perspective. We exploit a novel dataset with billions of observations of online ads spanning multiple countries, advertisers, and websites. Our focus is to estimate the impact of Apple’s gradual restriction and ultimate abolition of ad tracking in its Safari browser called Intelligent Tracking Prevention (ITP). We analyse how much advertisers are willing to pay for third-party cookies and how tightening privacy policies affects market outcomes. Our empirical strategy treats Apple’s policy changes as exogenous shocks to the supply of tracking opportunities and uses a series of event study models to estimate their causal impact. We find that the estimated treatment effects around the ITP introduction dates are small in magnitude on average but differ markedly across countries, advertising campaigns, and type of marketplace. These finding are consistent with a theoretical literature showing that changes in ad targeting have ambiguous general equilibrium effects. Moreover, our results suggest that markets failed to adjust immediately to new, more privacy-sensitive equilibria.
cemmap
WP 04/23,
SNF
WP A02/23
This paper measures the value of information mortgage brokers provide to UK households using an application of a structural model of search. Aided by administrative loans data, we document the existence of a substantial degree of unexplained price dispersion, and observe that while mortgages obtained from brokers are cheaper, borrowers who use intermediaries pay more once commissions are factored in. However, our results also show that broker presence exerts negative pressure on lenders’ market power. Compared to a world where broker advice is unavailable, brokers reduce average monthly mortgage costs by 21% and eliminate a part of welfare losses arising from costly search. In other words, eliminating brokers from the market would lead to even higher borrowing costs from the group of borrowers who need it most: those with the highest search costs. We also find that regulation in support of market centralization halves lenders’ markups and lowers monthly costs of an average mortgage by 4.4%.
We propose a dynamic oligopoly pricing model, in which consumers’ choices exhibit inertia and firms face costly price adjustments. The primitives of the model are estimated using scanner data from the UK butter and margarine industry. We evaluate the effects of frictions on price dynamics, profits and consumer welfare. We find that price adjustment costs are substantial and represent between 24-34% of net margins. Our model predicts that absence of these costs reduces persistence in prices, increases firms’ profits but has little effect on consumer surplus. The effects of consumer inertia on prices are much more pronounced than when firms cannot adjust prices freely.
We propose a model of nonsequential consumer search where consumers and firms differ in search and production costs respectively. We characterize the equilibrium of the game. We first show the distribution of search cost can be identified by market shares and prices. Subsequently, we identify the production cost distribution using a similar strategy to Guerre, Perrigne and Vuong (2000) as the firms’ decision problems resemble bidders’ problems in a particular procurement auction. We prove the firms’ cost density can be estimated at the same convergence rate as the optimal rate in Guerre et al. uniformly over any fixed subset on the interior of the support. The uniform convergence rate over any expanding support is slower due to a pole in the price pdf that is a feature of the equilibrium. Our simulation study confirms the theoretical features of the model. Our identification and convergence rate results also apply to two generalizations of the baseline search model that allow for: (i) vertically differentiated products; (ii) an intermediary. We apply the latter model to study loan search using UK mortgage data.
The National Infrastructure Commission (NIC) commissioned a team of academics and researchers at the IFS and UCL to create a software tool that estimates how land values respond to changes in land purpose or infrastructure improvements.
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