China's Vehicle Quota System and Consumer Choices of Automobile: A Perspective of Sunk Cost

2017-04-13

Speaker£ºDr LI Xun (Wuhan University)

Time£º15:30-17:00 April 30,2017(Sunday)

Site£ºB253

Abstract£ºThe effect of the vehicle quota system (VQS) in China such as Beijing's lottery system and Shanghai's auction system is under-analyzed. This paper analyzes the effects of VQS on consumer choices of automobile empirically and theoretically. Using a huge data set with more than 60 million observations, our empirical analysis based on the mixed logit model shows that Beijing's lottery system and Shanghai's auction system both stimulate consumers to purchase higher-price automobiles. However, different from Beijing, the effect of Shanghai's auction is dependent with individual income positively. We also propose a theoretical model extending Baliga and Ely (2011) to explain our empirical findings which is compatible for both the lottery and the auction systems. Our theoretical model consistently reveals the sunk cost in the lottery system in Beijing makes consumers prefer automobiles with higher price, while the impact of Shanghai's auction system is heterogeneous, depending on individual income.