Cornell University TREESPEAR Graduate Research Associate Yuan Chen presented her research on modeling supply and demand in the Chinese automobile industry at the China Meeting of the Econometric Society and at the Asian Meeting of the Econometric Society in Hong Kong.
For her research, Yuan is analyzing supply and demand in the automobile market using structural econometric modeling. In particular, she is developing and estimating a structural econometric model to estimate demand and cost parameters for all vehicles in the automobile market. Yuan’s innovative structural econometric model of a mixed oligopolistic differentiated products market allows different consumers to vary in how much they like different car characteristics on the demand side, and allows state-owned automobile companies to have different objectives than private automobile companies on the supply side.
With her structural econometric model, Yuan is estimating demand- and cost-side parameters, own- and cross-price elasticities, markups, and variable profits for alternative vehicles. The parameters she is estimating will enable her to better understand what factors affect the demand and cost of vehicles, and how consumers trade off various vehicle characteristics (such as fuel efficiency, whether the vehicle is an electric vehicle, etc.) with each other and with price. She will use the model to simulate the demand and cost for new vehicles, including alternative vehicles; the effects of new vehicles; and the effects of various government policies on demand and cost.
Yuan is applying her model to an impressively detailed annual data set she has collected and constructed on sales, prices, and characteristics of the majority of vehicle makes and models in China, including electric vehicles, hybrid vehicles, and alternative-fueled vehicles, over the period 2004 to 2013. In addition to price, she has collected data on vehicle characteristics, such as power, fuel efficiency, vehicle type (e.g., sedans, SUVs, pick-ups, etc.), and displacement for the majority of vehicle makes and models in China. Yuan’s impressive data set is the culmination of a full year’s hard and careful work painstakingly collecting, copying, scraping, and translating nearly 7000 observations, much of it by hand.
Yuan innovates upon the previous literature by developing a model of the Chinese automobile market; by including alternative vehicles so that in addition to cost and demand parameters relating to gasoline-fueled vehicles, cost and demand parameters relating to alternative vehicles can be estimated; by modeling the behavior of not only private automobile companies but also the state-owned automobile companies in China; by analyzing joint ventures Chinese automobile firms form with international car companies; by analyzing the effects of Chinese automobile policy, including Chinese fuel economy standards; and by drawing from the environmental and energy economics literature on alternative vehicles and policy. Yuan’s clever use of frontier methods applied to an important issue in transportation economics makes her research of particular interest to academics and to transportation economists and policy-makers.
Yuan's results show that forming international joint ventures with car companies in the US and Japan is associated with a lower marginal cost to Chinese car companies of technology-related vehicle characteristics. She uses the model to simulate the effects of introducing a new alternative vehicle and of counterfactual government policies on alternative vehicle market share and welfare. She finds that China’s Corporate Average Fuel Consumption (CAFC) standard is inefficient, and that the alternative vehicle market share, consumer surplus, private firm profits, and state-owned firm utility would all increase if the CAFC standard were removed and the target under China’s fuel economy standard were raised instead.
Yuan’s research has important implications for transportation economics, energy economics, and policy. Increasing the supply and demand of alternative vehicles is an important component of sustainable transportation policy in the United States and throughout the world. The results of Yuan’s research will have important implications for the design of sustainable transportation policies to increase market penetration of alternative vehicles with potential environmental and climate benefits. Yuan’s model of the mixed oligopolistic differentiated products vehicle market that allows different consumers to vary in how much they like different car characteristics enables one to analyze the supply and demand of all vehicles, including alternative vehicles; to analyze the effects of government policy on alternative vehicle supply and demand; and to design sustainable transportation policies to increase market penetration of alternative vehicles. The model she is developing can be applied to any vehicle market, including the U.S. vehicle market.
In addition, Yuan’s analysis of the Chinese automobile industry in particular is relevant to sustainable transportation in the U.S. for several reasons. First, many international firms design vehicles for both the U.S. and Chinese market; as a consequence, demand, costs, and government policies in the Chinese automobile market have important implications for the U.S. automobile market and for sustainable transportation in the U.S. Second, many Chinese car companies form joint ventures with international car companies, including U.S. car companies. Joint ventures between U.S. and Chinese car companies may affect the development, costs, supply, and demand of new alternative vehicles. The Chinese vehicle market therefore has important implications for supply and demand of alternative vehicles in the U.S., and therefore for sustainable transportation in the U.S.
China is experiencing rapid economic growth and, along with it, rapid growth in vehicle ownership. This rapid growth in vehicle ownership and vehicle usage is linked to increasing transportation energy use, gasoline consumption, global warming, emissions, air pollution and other problems. Yuan’s estimates of the factors that affect demand and supply in the Chinese automobile market is significant for policy-makers interested in developing incentive policies to increase market penetration of alternative vehicles with potential environmental and climate benefits.
Yuan has received numerous prestigious awards for her research, including the Transportation Research Forum Best Paper Award; the National Center for Sustainable Transportation (NCST) Dissertation Grant; the 2017 Nissan Corporate Affiliate Fellowship; the Agricultural and Applied Economics Association (AAEA) Travel Grant for Early Career Professionals and Graduate Students; the UC-Davis Graduate Student Travel Award; 2 ITS-Davis Travel Grants; the U.S. Association for Energy Economics Conference Registration Fee Scholarship; the UC-Davis Transportation Technology and Policy Fellowship; the 2015 Shell Corporate Affiliate Fellowship; the UC-Davis Fellowship for Excellence in Graduate Research; and a fellowship from the China Scholarship Council.
In addition to the China Meeting of the Econometric Society and the Asian Meeting of the Econometric Society in Hong Kong, Yuan has also presented her research at Cornell University; Renmin University; the U.S. Association for Energy Economics (USAEE) North American Conference; the Interdisciplinary Ph.D. Workshop in Sustainable Development (IPWSD) at Columbia University; an Association of Environmental and Resource Economists (AERE) session at the Southern Economic Association (SEA) Annual Conference; and the South Lake Innovation Forum for International Young Talents at Huazhong Agricultural University.
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