THREE ESSAYS ON INDUSTRIAL ORGANIZATION AND ENVIRONMENTAL ECONOMICS By ZIYING YANG A dissertation submitted in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY WASHINGTON STATE UNIVERSITY School of Economic Sciences JULY 2017 © Copyright by ZIYING YANG, 2017 All Rights Reserved © Copyright by ZIYING YANG, 2017 All Rights Reserved To the Faculty of Washington State University: The members of the Committee appointed to examine the dissertation of ZIYING YANG find it satisfactory and recommend that it be accepted. Felix Munoz-Garcia, Ph.D., Chair Ana Espinola-Arredondo, Ph.D. Jill McCluskey, Ph.D. Jia Yan, Ph.D. ii ACKNOWLEDGMENTS First, I would like to thank my advisor, Felix Munoz-Garcia, for his inspiration, advice and guidance. He helped me know how to be a good researcher and how to be a qualified advisor in the future. It was really nice to work with Dr. Felix Munoz-Garcia. I would also like to express my sincere gratitude to Dr. Ana Espinola-Arredondo, Dr. Jill McCluskey, and Dr. Jia Yan for their insightful feedback, comments, and suggestions. My dissertation was polished with their help. I am thankful to Xinlong Tan, Haowei Yu, Xiangrui Wang, and Sunny. Thanks for their time to discuss my ideas, listen to my presentation, and to provide valuable suggestions for my research. It is worth to note that Jaimie Dahl, Tom Dahl, Rich Hoeft, Karla Makus, and other staff in the School of Economic Sciences provided me with great help during my Ph.D. program. For this, I am deeply grateful. I would also like to thank my friends in Pullman. Without them, I couldn't have such a great time in the past four years at Pullman. Most importantly, I would like to express my deepest gratitude to my wife, Shuhong Zhang, for her sacrifice and encouragement. I owe much of my achievements during my Ph.D. studies to her. Without her, I couldn't get my Ph.D. program done. I acknowledge the support and understanding of my parents, Shengding Yang and Lanxiang Ye, my sister, Zijiao Yang, and my brother, Helin Yang. iii THREE ESSAYS ON INDUSTRIAL ORGANIZATION AND ENVIRONMENTAL ECONOMICS Abstract by Ziying Yang, Ph.D. Washington State University July 2017 Chair: Felix Munoz-Garcia This dissertation consists of three papers on industrial organization and environmental economics. The first paper analyzes a two-stage sequential-move model of location and pricing to identify firm’s location, output, and welfare. We consider two pricing regimes (mill pricing and spatial price discrimination) and, unlike previous literature, allow in each of them for a non-uniform population density, non-constant location costs (i.e., the setup costs, such rental costs and land prices, differ by firm’s location), and endogenous market boundaries. Under non-constant location costs, we find that welfare is higher (lower) under mill than under discriminatory pricing when transportation rates are low (high, respectively). The second paper investigates the effect of Beijing's vehicle lottery system on fleet com- position, fuel consumption, air pollution, and social welfare. We find that the lottery reduced new passenger vehicle sales by 50.15%, fuel consumption by 48.69%, and pollutant emissions by 48.69% in 2012. Also, such lottery shifted new auto purchases towards high-end but less fuel efficient vehicles. In our counterfactual analysis, we show that a progressive tax scheme works better than the lottery system at decreasing fuel consumption and air pollution, and leads to a higher fleet fuel efficiency and less welfare loss. iv The third paper investigates the effectiveness and welfare consequences of (i) vehicle and vessel usage tax (VVUT) incentives, (ii) fuel-efficient vehicle subsidy program, and (iii) new- energy vehicle (NEV) private purchase subsidy pilot program. The empirical findings suggest that these policies promote the diffusion of fuel-efficient vehicles and NEVs, and improve fleet fuel efficiency. However, VVUT incentives and fuel-efficient vehicle subsidy program increases oil consumption and CO2 emissions. Although NEV private purchase subsidy pilot program cuts down gas consumption, it raises CO2 emissions. VVUT incentives and fuel- efficient vehicle subsidy program improve social welfare, while NEV private purchase subsidy pilot program causes welfare loss. v TABLE OF CONTENTS Page ACKNOWLEDGMENTS . iii ABSTRACT...................................................................... iv LIST OF TABLES . .x LIST OF FIGURES . xii 1. Can Banning Spatial Price Discrimination Improve Social Welfare? . .1 1.1 Introduction . .1 1.2 Model ....................................................................6 1.3 Second stage: Pricing decisions . .8 1.3.1 Mill pricing . .8 1.3.2 Discriminatory pricing . 10 1.4 First stage: location decisions . 12 1.4.1 Equilibrium results . 12 1.4.2 Numerical simulation. 18 1.4.3 Effects of banning spatial price discrimination . 23 1.5 Conclusions . 24 2. The Effects of Beijing's Vehicle Lottery System on Fleet Composition and En- vironment . 27 2.1 Introduction . 27 2.2 Industry Background, Policy and Data Description . 33 2.2.1 Industry Background . 33 2.2.2 Policy Description. 34 vi 2.2.3 Data. 37 Data Description . 37 Stylized Facts . 42 2.3 Empirical Model and Estimation . 44 2.3.1 Utility Function Specification. 44 2.3.2 Choice Probability and Aggregate Demand . 47 2.3.3 Identification and Estimation . 47 2.4 Estimation Results . 50 2.4.1 Parameter Estimates from the Structural Demand Model . 50 2.4.2 Robustness Checks . 53 2.4.3 Impact on New Vehicle Registration . 54 2.5 Counterfactual Analysis . 56 2.5.1 Impact on Fleet Composition . 57 2.5.2 Impacts on Gasoline Consumption and Pollutant Emissions . 61 2.5.3 Welfare Analysis . 66 2.5.4 Alternative Policies and Comparisons . 68 2.6 Conclusion. 70 3. Welfare Analysis of Government Incentives for Fuel Efficient Vehicles and New Energy Vehicles in China. 73 3.1 Introduction . 74 3.2 Policy and Data Description . 78 3.2.1 Policy Description. 78 vehicle and vessel usage tax Incentives . 78 vii Fuel-efficient Vehicle Subsidy Program . 80 NEV Private Purchase Subsidy Pilot Program . 82 3.2.2 Data. 84 3.3 Empirical Model and Estimation . 88 3.3.1 Utility Function Specification. 88 3.3.2 Market Share and Aggregate Demand . 91 3.3.3 Identification Method . 92 3.3.4 Instruments . 94 3.4 Estimation Results . 95 3.4.1 Parameter Estimates from the Structural Demand Model . 95 3.4.2 Alternative Specifications . 98 3.4.3 Elasticities . 100 3.5 Counterfactual Analysis . 102 3.5.1 Car Sales . 103 3.5.2 Gas Consumption and CO2 Emissions . 107 3.5.3 Welfare Analysis . 110 3.5.4 Government Support versus Gasoline Tax Comparisons . 113 3.6 Conclusion. 114 APPENDIX . 116 A. Proof of Lemma 1. 116 B. Proof of Lemma 2. 117 C. Proof of Proposition 1 . 118 D. Comparison of equilibrium outcomes in Case 3. ..