This paper explores the effects of consumption-tax and fuel-tax adjustments in the Chinese automobile industry. Applying the model and simulation method of Berry, Levinson, and Pakes (1995), we ...conduct a comparative static analysis of equilibrium prices and sales, fuel consumption, and social welfare before and after tax adjustments. For the first time, we compare the progressivity of both taxes. Our empirical findings suggest that the fuel tax is effective in decreasing fuel consumption at the expense of social welfare, while the consumption tax does not significantly affect either fuel consumption or social welfare.
We consider a principal-agent model to examine the conditions under which corruption prompts investment. We also investigate three policies that can be used to combat corruption: strengthening ...monitoring, increasing compensation, and enhancing accountability. Our theory suggests that increasing monitoring intensity mitigates corruption at the cost of reduced investment. The most cost- effective policy to control corruption is to enhance accountability, which reduces corruption without decreasing growth-enhancing investment. We test our theo- retical predictions using Chinese infrastructure investment and corruption data. The data show that infrastructure investment is negatively correlated with anti- corruption effort, as predicted by the theoretical model.
Access to electricity continues to be a popular subject in empirical studies. However, the choice of key factors related to electricity access in the literature to date has been ad hoc due to the ...lack of a theoretical framework. This paper adopts a Bayesian Model Averaging (BMA) approach to selects important factors related to electricity access from 26 socioeconomic indicators using a sample of 48 developing countries, and reveal their long-term relationship with electricity access. The BMA approach allows us to identify the optimal empirical model when a theoretical foundation is not available. Moreover, it allows us to address the relative importance of variables using posterior inclusion probabilities and thus has clear policy relevance. Our results show that access to finance, education, economic development, infrastructure, and industrialisation are positively related to electricity access in the long-run. Although the long-run relationship does not indicate causality, it shows that to maintain this relationship, policy adjustments against any deviations from the relationship are needed. Our study suggests that electrification needs not only economic, educational and infrastructural development, but also private sector participation, governments’ commitment and political will, and integration with poverty reduction and other development schemes.
•Relationship between electricity access and social-economic factors are studied.•Bayesian model averaging (BMA) approach is used to identify the long-run model.•Factors are ranked according to their posterior inclusion probabilities.•Policy adjustments are needed to maintain the long-term equilibrium relationship.
This paper analyzes the herding behavior that characterizes lenders' lending decisions on a microloan platform and explains how rational herding behavior can resolve the information-asymmetry ...problem, which is a well-known reason for the failure of online microloan platforms. Using a set of panel data on individual lending decisions acquired from Paipaidai.com (PPDai), an online microloan platform, we examine the influence of the lending decisions of prominent, experienced lenders on novice lenders to identify rational herding behavior. Our empirical analysis demonstrates that rational herding behavior can in fact efficiently reduce lender loss from borrower defaults caused by limited information. Although it is typically assumed that herding behavior is irrational, we find that it can be rational in this context and can thus shed light on why PPDai has succeeded while most other microloan platforms have failed. Accordingly, we make three key contributions: 1) we use heterogeneous herding effects to empirically determine whether lenders' herding behavior on PPDai is rational based on observational learning; 2) we investigate the moderating effect of borrower credit and novice-lender experience on herding, and we leverage this heterogeneity in lender experience to better explain loan results; and 3) because PPDai publicly provides potential lenders with a transparent credit score-in contrast to platforms like Prosper.com, which leverage hidden proprietary credit information from Experian-we further analyze the credit composition of prominent lenders to better understand the crucial determinants of rational herding. In fact, our follow-up survival simulations indicate that without rational herding, the total number of successful PPDai loans would have decreased by around 46 percent during the study period-a finding that further underlines the crucial influence of rational herding and the unique contextual factors of PPDai that have fostered it.
This paper proposes a competition theory to explain the role of automobile dealers’ investment in a vertical contract with manufacturers. Dealer contracts specify manufacturer-suggested retail prices ...and elements of dealer quality. Dealer quality investments require minimum financial capital where manufacturers impose these limits on dealers. The required dealer investment screens for qualified dealers and incentivizes the desired dealer quality. The prediction is that promotional services, prices, and gross returns are greater for high-quality brands than that for standard-quality brands. To test the theory, we collected data on auto dealers in China in June 2015 for an empirical analysis. Our findings support these predictions: Dealer investment (registered capital) is positively correlated with brand average product prices. In addition, the registered capital is higher when the aggregate demand is greater since high demand increases returns, which induces dealers to increase their investment.
Rationing mechanisms are widely used to allocate scarce resources caused by policy intervention. The effect of rationing on equilibrium usually depends on the rationing mechanism. However, stylized ...facts in the Chinese passenger vehicle market suggest that the quota on license plates shifts vehicle demand to the high-price end, regardless of whether rationing occurs through an auction or a lottery. This study provides a unified theoretical explanation and an empirical analysis for this finding. When the quota allocation process incurs opportunity costs, only the consumers with a high willingness-to-pay participate in the process, which shifts sales distribution to the high-price end.
We investigate the market equilibrium and welfare effects of a fuel tax in China relative to an alternative policy instrument that rations the number of new automobile sales through auctioned quotas. ...Unlike those of previous studies, our modeling approach incorporates both household car purchase and utilization decisions, the latter of which have been ignored in previous studies on China's fuel tax. Ignoring this margin of choice will underestimate the fuel tax's ability to mitigate externalities. Using detailed household-level panel data and a fixed effects econometric specification, we estimate the fuel price elasticity of vehicle miles traveled is −0.59 on average. The results of the counterfactual analysis suggest that a 51% increase in tax-inclusive gasoline prices will reduce car sales by 24.9% but increase social welfare to a degree that depends on vehicles' lifetime. We find that compared to auctioned quotas, the fuel tax results in greater car sales but higher social welfare.
We examine the environmental consequences of two regional economic development (RED) policies that aimed to develop the economy of the relatively underdeveloped upper Pearl River (UPR) regions in ...Guangdong Province, China. Applying the triple‐difference analysis to annual county‐industry‐level data, we find that the two RED policies caused higher growth in industries with high water pollution than in industries with less water pollution in the UPR regions. The second RED policy with environmental regulations was effective in restraining the new entry of firms in high‐pollution industries into the UPR regions but failed to drive existing high‐pollution firms out of the UPR regions. Firms' location decisions were driven by the more favorable tax regimes and less stringent pollution regulations in the UPR regions.
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