Electric Vehicle Adoption Under Subsidies and Emission Standards : The Role of Regulatory Commitment

We compare two regulatory structures in the application of emission standards and a subsidy scheme in the automobile market. The regulator can either commit to an emission standard or is not able to commit. Firms compete à la Cournot and produce fuel-powered and electric vehicles. The emissions of fuel-powered vehicles can be abated by means of investing in emission-reducing innovation. Our results indicate that the commitment achieves a major adoption of electric vehicles, less emissions, more emission-reducing innovation, more profits and higher total welfare. By contrast, non-commitment yields more fuel-powered vehicles, more vehicles in total and higher consumer surplus