Carlos Fardella, Nano Barahona, Felipe Sepúlveda
Abstract: Persistent air-pollution problems have led authorities in many cities around the world to impose limits on car use by means of vintage-specific restrictions or low-emission zones. Any vintage restriction must establish not only the cars that face a restriction but also its geographic area of application. As a result of the restriction, a fraction of restricted cars are exported outside the restricted area. Because restricted cars become cheaper, emissions in the restricted area could increase if exported cars remain too close to it. The extent to which such emissions leakage can occur crucially depends on transaction costs in the car market. We study this possibility with a model of the car market that allows for transaction costs and data from Santiago’s 2017 vintage restriction. We fail to find emissions leakage, at least severe enough to undo the 2017 policy effects. Interestingly, transaction costs are shown to have a non-monotonic impact on emissions, and hence, on welfare.