This thesis addresses several aspects of the demand for environmentally-friendly durable goods. Chapter 2 asks how technological obsolescence affects how we should think about how much to promote the adoption of environmentally-friendly durables. If the purely social benefits improve quickly but private benefits only improve slowly, then subsidizing adoption now may delay upgrading in the future. As an example, I consider the impact of subsidizing the replacement of short-lived incandescent bulbs with long-lived CFLs even though we know that much better LEDs will soon be on the market. In the process, I provide some of the first publicly-available estimates of the elasticity of demand for CFLs and energy-saving in lighting.
Chapter 3 discusses the optimal timing of product introduction to market for goods that provide environmental benefits. Although a simple model argues for early introduction, if early-adopters have overly optimistic expectations about product quality, product launch decisions that are optimal for firms may be sub-optimal from a social point of view.
At the firm level, capital stock can vary widely in the intensity with which it uses fuels. Newer vintages are often associated with increased input use efficiency, leading to emissions reductions through energy savings. Chapter 4 analyzes the impact of trade liberalization in India on the greenhouse gas emissions of that country's manufacturing firms. I document that over a period of 13 years within-industry reallocation of market share to favor more energy-efficient firms produced a larger savings in greenhouse gases than is expected from all of India's Clean Development Mechanism energy efficiency and renewable energy projects combined. Using 19 years of firm-level data from India's Annual Survey of Industries and industry-level variation in policy reforms, I estimate the relative contributions of tariffs on final goods, tariffs on intermediate goods, FDI reform, and delicensing on increasing energy efficiency within firms and on reducing market share of energy-inefficient firms. I observe that reductions in tariffs on intermediate inputs led to a 23% improvement in fuel efficiency, with the entire effect coming from within-firm improvements. Delicensing and FDI reform, not tariffs on final goods, drove the reallocation effect, with post-liberalization changes in licensing requirements improving fuel efficiency an additional 7%.
