Yesterday the House of Representatives overwhelmingly passed the Consumer Assistance to Recycle and Save Act -- otherwise known as "Cash-for-Clunkers." The bill authorizes $4 billion in vouchers (up to $4500 each) to help pay for a new car when trading in an old one. There are requirements of upgrading fuel economy etc. attached.
While I support the idea (it has been used in other countries successfully), I would like to point out that House passage sets up an interesting natural experiment in behavioral economics. According to some analysis, 25 million vehicles might be eligible for the plan and a million might actually take advantage of the vouchers.
Now, if you were one of the million people who might use the vouchers - what are you going to do? The bill has just passed the House. It still has to go through the Senate. And the bill is an authorization - it still needs an appropriation. Then the Secretary of Transportation has to set up the regulations and the dealers have to be certified to participate in the program.
So, you really don't know when the program will actually begin. You need a new car soon. But $4500 is nothing to sneeze at. Do you wait?
Do enough people wait so the net effect is an immediate slowdown in new car sales? Does the program cause a transfer of sales from immediate term to later in the future (when the program is operating)? It would be very interesting if the program had the perverse affect of causing a decline in sales right at the point when increased sales are needed. If so, is there a way to design such a program to prevent this from happening?
There is a dissertation out there for some bright economics graduate student!
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