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Regulation and rights reallocation: how private car license plate auction policy in Shanghai affects travelers’ welfare

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Regulation and rights reallocation: how private car license plate auction policy in Shanghai affects travelers’ welfare

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Content Regulation and Rights Reallocation: How Private Car License Plate Auction Policy in Shanghai Affects Travelers’ Welfare Zhi Li University of Southern California Degree Conferral Date: December 17, 2014 Master of Arts in Economics/Master of Planning Dana and David Dornsife College of Letters, Arts and Sciences Sol Price School of Public Policy University of Southern California Committee Harrison Cheng, Ph.D., Associate Professor, Chair Eric Heikkila, Ph.D., Professor Jeff Nugent, Ph.D., Professor LI, 2014. University of Southern California Page 1 Abstract Shanghai established its private vehicle license plate auction system to restrict the vehicle population in responding to the limited urban highway capacity and traffic congestion. This paper examines the policy’s effects on urban travelers in households with different income levels, and compares the result with the lottery system. The first section of the model looks into the relationship between households’ income and their sensitivity to the license price change. The rich households turn out to be less sensitive while the poor households are more inclined to travel by public transit when the license plate price rises. The second section uses several micro-models to analyze how the welfare of households with different income levels changes in different systems: free market condition, ideal condition, lottery system, and auction system. Finally we find that the auction system blocks poor households out of the private vehicle consumer group while it is efficient as the ideal condition as a whole, and the welfare reallocation is greatly controlled by the government through its expenditure of the auction fund. Keywords: vehicle license plate, auction, welfare LI, 2014. University of Southern California Page 2 Contents 1. Introduction .............................................................................................................................................. 3 2. Background ............................................................................................................................................... 4 3. Literature Review ................................................................................................................................. 10 4. The Model .............................................................................................................................................. 11 4.1 Assumptions .................................................................................................................................... 11 4.2 Households’ sensitivity to license plate price change ............................................................ 11 4.3 Private vehicle travel model ........................................................................................................ 13 5. Empirical illustration and conclusion .............................................................................................. 22 Figures Figure 1 GDP growth, traveler turnover volume and car ownership in China from 1978 to 2013. Data source: Shanghai Statistical Year Book 2000-2013. ................................................... 4 Figure 2 Shanghai Population Growth and Civil Vehicle Population (1978-2012). Data source: Shanghai Statistical Year Book 2000-2013. ....................................................................................... 5 Figure 3 Shanghai Road Length and Civil Vehicle Population (1978-2012). Data source: Shanghai Statistical Year Book 2000-2013. ....................................................................................... 5 Figure 4 Shanghai Public Transit Development and Civil Passenger Vehicle Population (1978- 2012). Data source: Shanghai Statistical Year Book 2000-2013. .................................................. 6 Figure 5 TDM logic model ............................................................................................................................ 7 Figure 6 Basic model .................................................................................................................................... 14 Figure 7 Case A ............................................................................................................................................. 16 Figure 8 Case B .............................................................................................................................................. 17 Figure 9 Case C ............................................................................................................................................. 18 Figure 10 Extended case ............................................................................................................................. 21 Figure 11 Monthly License Plate Quota and Number of Bidders (2002-2014). ............................ 22 Figure 12 Bid Acceptance Probability and Successful Bid Price in Shanghai (2002-2014) ......... 23 Figure 13 Average successful bid price and bid acceptance probability ........................................... 23 Figure 14 Structure of the auction fund expenditure. Data source: Shanghai Municipal Finance Bureau ...................................................................................................................................................... 24 Tables Table 1 Comparison between lottery and auction .................................................................................... 8 Table 2 Case A welfare changes ................................................................................................................ 19 Table 3 Case B welfare changes ................................................................................................................. 19 Table 4 Case C welfare changes ................................................................................................................. 20 Table 5 Welfare changes for extension model ....................................................................................... 21 LI, 2014. University of Southern California Page 3 1. Introduction Urban traveler’s welfare is closely associated with transportation regulations designed by the government. In Shanghai, the private car license plate auction system plays a key role in determining how households with different income levels travel for daily commute. This research aims at analyzing how this policy reallocates traveler’s welfare, compared with the equilibrium under the free market (without restriction), the ideal market condition and the quota system with lottery. In the first part, we review facts regarding to China’s urban economic development in past several decades and explore the motive behind the establishment of the vehicle quota system. Then we briefly introduce the history of Shanghai private vehicle license plate auction system and look into how it works as a typical traffic demand management tool. In the second part, a model is set up to measure the welfare changes caused to different households by the auction policy. The first section of the model looks into the relationship between households’ income and their sensitivity to the license price change. The second section uses several micro-models to analyze how the welfare of households with different income levels changes in different systems: free market condition, ideal condition, lottery system, and auction system. As a conclusion, in the final part, we incorporate the data collected from Shanghai license plate auction system to the model, and provide a specific answer to the question asked in the title. LI, 2014. University of Southern California Page 4 2. Background In last 30 years after President Deng Xiaoping’s Open and Reform Policy being establish in 1978, China has been experiencing infusive rapid economic growth. China’s GDP has increased to 9240.3 billion US dollars in 2013, which is 62 times as that of 1978. Motivated by the significant economic growth, demand of private vehicles grows rapidly since people travel more frequently and private cars are becoming more affordable to Chinese urban travelers. Figure 1 GDP growth, traveler turnover volume and car ownership in China from 1978 to 2013. Data source: Shanghai Statistical Year Book 2000-2013. Figure1 shows how national turnover volume of road passenger traffic and the number of civil vehicles change with GDP growth. As a result, an overwhelming amount of new motor vehicles rushed on to the limited urban roads every year to encroach limited public space. Despite of huge investment on urban highways, original urban form set up a natural frame for the possibility of optimization of urban highway traffic capacity. Especially for big cities, like Shanghai, urban transport “stagnation” is aggravated by high-speed urbanization wave: millions of residents move from rural areas to big cities and become urban travelers. Shanghai, as the largest city by population and the most developed city in China, also suffers from serious urban transportation problems and struggles to make choices between regulation and construction. 0.00 10000.00 20000.00 30000.00 40000.00 50000.00 60000.00 70000.00 80000.00 90000.00 100000.00 0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000 Year 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Civic Passenger Car Population (thousand) Private Passenger Car Population (thousand) GDP (constant 2005 US$, billion) GDP per capita (constant 2005 US$ ） Road Passenger Traffic Turnover Volume (billion person-kms) LI, 2014. University of Southern California Page 5 Figure 2 Shanghai Population Growth and Civil Vehicle Population (1978-2012). Data source: Shanghai Statistical Year Book 2000-2013. 0 200 400 600 800 1000 1200 1400 1600 1800 2000 10000 12000 14000 16000 18000 20000 22000 24000 26000 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 CivilPassenger Vehicles (thousand vehicles) Private Civil Passenger Vehicles (thousand vehicles) Residents Registered Citizen （with Hukou) 0 200 400 600 800 1000 1200 1400 1600 1800 2000 0 2000 4000 6000 8000 10000 12000 14000 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 CivilPassenger Vehicles (thousand vehicles) Private Civil Passenger Vehicles (thousand vehicles) Road Operation Mileage (km) Figure 3 Shanghai Road Length and Civil Vehicle Population (1978-2012). Data source: Shanghai Statistical Year Book 2000- 2013. LI, 2014. University of Southern California Page 6 Figure 2, 3 and 4 show the developing path of the population, the civil passenger vehicle population, various public transit modes, and the road length. From 1987, the number of residents living in Shanghai has been growing significantly even though the officially registered population is slightly increasing. The growth rate of civil passenger vehicle is obviously higher than that of resident and registered citizen population, which means the passenger vehicle ownership is expanding. In order to deal with the traffic congestion caused by the booming vehicle population, Shanghai municipal government has been investing in constructing more urban roads to accommodate those cars and multiple public transit facilities to share the travel demand. However, as we see in Figure 3 and 4, the vehicle population is still growing faster than the provision of public roads and other travel modes. Finally, as a further measure, Shanghai established a vehicle license plate auction system in 1994 to keep the vehicle population growth under control. Actually the numbers we see in the figure after 1994 is those that have been “controlled”. The rest part of this section will briefly introduce the mechanism or “supposed” mechanism of the license plate auction as a typical traffic demand management (TDM) tool and how it is supposed to work in Shanghai. 0 200 400 600 800 1000 1200 1400 1600 1800 2000 0 1000 2000 3000 4000 5000 6000 7000 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 CivilPassenger Vehicles (thousand vehicles) Private Civil Passenger Vehicles (thousand vehicles) Passenger Volume of Public Buses (million person-times ） Number of Carryings (million person-times) Passenger Volume of Metro (million person-times) Figure 4 Shanghai Public Transit Development and Civil Passenger Vehicle Population (1978-2012). Data source: Shanghai Statistical Year Book 2000-2013. LI, 2014. University of Southern California Page 7 License Plate Auction as a typical TDM tool Traffic Demand Management (TDM) is a comprehensive concept and often refers to multi- faceted policies and strategies aiming at changing travelers’ behavior to control traffic demand to improve the efficiency of the transportation network, mitigate negative environmental impacts and achieve other specific planning goals. As shown by the TDM logic model above, all traffic demand is generated from the demand of mobility or geographic displacement, which is related closely with the land use pattern on the city level. To response to this demand, cities provide roads, public transit system and other transportation facilities as part of public services. However, the market-oriented transportation development may surrender to an inefficient and unsustainable transportation system and result in congestion, high energy consumption and air pollution. Specifically, charging car drivers the full cost of the negative externality using transport, including the environmental and social costs associated with driving a private car may lead to a proper equilibrium where the level of vehicle ownership and usage frequency are optimum for the whole society. Vehicle ownership control is the most direct and straightforward measure to reduce the car population growth rate. However, few countries and cities take this policy as a key measure to alleviate traffic conditions and pollution due to its contested social and economic implications. In most cases, municipalities set up a cap on vehicle registrations and establish a quota of newly registered license plates. The motor vehicle management agency usually allocates these quotas via license-plate lottery or auction. For example, Beijing’s license plate lottery system, as part of the new package of rules announced in December 2010 aiming at easing traffic gridlock, allows only 20,000 new registrations per month; individual car users account for 88% of the license plates quota which are randomly assigned to applicants. Beyond that, only local resident permit (hukou) holders, foreigners who have lived in the city for at least a year and those residents without Beijing hukou who have provided proof they have paid social security fees and income taxes for five consecutive years are eligible to apply for the license (Ernst and Young, 2011). Before Beijing’s restriction policies, quota system (VQS) in Singapore used to be the only scheme in the world to directly control the growth rate of vehicle population to manage urban Mode Share Urban Form Land Use Pattern Socio-economic Status Traffic Revised Demand Traffic Original Demand TDM Reduce Total Traffic Demand Reduce Private Car Ownership/Usage Figure 5 TDM logic model LI, 2014. University of Southern California Page 8 congestion. As a result, VQS limits the growth of vehicle population to about 3% a year, and the revenue generated from the ownership restriction, like auction, may be channeled into a specific account to finance the public transit and other transport infrastructure (Koh, 2004). Theoretically, usage taxes can fully internalize congestion externalities, as these taxes directly affect the cost of urban travel. The main justification for a quota system is that the control of vehicle population is more tight and accurate. However, the optimality of the VQS should not be judged by its effectiveness in tackling congestion per se, but by its success in attaining the targeted growth of the vehicle population and its impact on social welfare (Koh, 2004). Under the umbrella of car ownership restriction policies, different mechanism design may cause different and even reverse social and economic implications. The most commonly used two methods to allocate quotas are lottery, like in Beijing, and auction, like in Shanghai and Singapore. Generally speaking, lottery considers more about the social balance, especially of the right to use a car, between different income levels and prohibit the possibility that cars are all occupied by the rich. Auction pays more attention on the efficient allocation of the quota licenses and also can help government collect money to subsidize public transit. Table 1 Comparison between lottery and auction Advantages Disadvantages Lottery  Poor people also get chances to buy cars  No revenue for the government;  Quotas are not efficiently allocated (e.g. people may not be able to buy a car in an emergency) ;  More people are encouraged to attend the lottery even they don’t want to buy a car immediately Auction  The municipal government may collect money to subsidize public transit;  Quotas are allocated at its most value, which is more market-oriented and more efficient  Car ownership will be concentrated to the middle and high class Secondly, the lottery system may encourage more people who do not need a car at that time to join the lottery to take a chance and compete with those who need a car immediately. This bubble of demand can be weakened by certain accessory policies, for example, Beijing requires all residents who have drawn the short straw to buy and register a car within six months otherwise the quota will be confiscated. In addition, several issues are also critical to the effectiveness of the policy implementation, like transferability (secondary market), sub-categorization and how the auction or lottery system is designed. LI, 2014. University of Southern California Page 9 History of Vehicle License Plate Auction in Shanghai The policy of license plate auction in Shanghai has been changing since its first establishment in 1994. Before 1986, all license plates for private vehicles were distributed directly by the municipal government department of finance since only a very small proportion of total vehicles were private at that time. In October 1986, the first specific license plate for private vehicles with “Z” as the first letter on the plate was issued, and this was regarded by temporal critics as the “milestone of Open and Reform and the symbol of a new age of private vehicles.” Until 1994, the first auction system was launched to allocate license plates through market power though it was not public and with a basic price CNY 100,000. From 1994 to 1998, the total number of authorized license plates is only 11,000 and the deal price once reached to CNY 160,000. In the beginning of 1998, Shanghai established an auction system with a relative lower base price, CNY 200,000, but only open to Santana cars, an automobile brand owned by Shanghai Volkswagen and Buicks produced by Shanghai GM. This special policy treatment to locally manufactured cars was regarded as an incarnation of regional protectionism against cars produced in other provinces and imported foreign cars. Two years later, the special treatment was repealed due to waves of public controversy. In January 2000, the auction rule was redesigned so that no base license plate price for domestic cars while a minimum bid price of CNY 50,000 still applied to imported foreign cars. Since then the auction was held once every month regularly. As a big progress after China occupied a seat in WTO club, Shanghai broke its protection to domestic motor industries in 2003, since when domestic cars and imported cars shared the same auction rule and system. In this year, both the quota of license plates and their prices increased significantly. In January 2008, to deal with the sharply falling bid acceptance probability, the climbing bid price (which reached to CNY 56,000 in 2007 year-end) and the illegal secondary market for plate transaction, Shanghai revised its auction rule to publicize auction processing information and allow limited bid revision (twice). From 2008 the auction system can be accessed via phone and internet. The new auction process is divided into two stages: in the first stage prospective bidders may submit a single initial bid while observing the lowest accepted bid at that point; in the second stage, bidders are allowed to revise the bid price twice within 30 minutes. The constraint is that the revised bid price must fall within a narrow interval (around CNY 300) around the lowest accepted bid price at that time. The bid interval is moving during the second stage with the changing lowest accepted bid price. We will have a closer scrutiny later in the empirical illustration section. Arguments: initial analysis of License Plate Auction system Transportation policies and travelers’ welfare are closely related. The brief introduction to the background of the vehicle ownership restriction policies above provides a general context of the problem we are looking into today. Compared with the lottery system, a perfect auction system generates a discriminatory pricing system allowing the most efficient allocation of the “driving rights.” From the city planner or city manager’s perspective, it seems more important to measure how residents’ welfare have been affected by the urban policy other than abstract “efficiency” and “equity.” LI, 2014. University of Southern California Page 10 3. Literature Review Shanghai Vehicle License Plate Auction system has drawn attention from both Chinese and western researchers due to its innovative system design and complex settings and results. As a typical question in urban economics, traffic congestion and its model are mentioned frequently in various textbooks and journal articles. However, very few research focus on how the technics responding to congestion affect travelers’ choices and their welfare. The multistage bidding rule in Shanghai license plate auction system provides a complicated game arrangement and an interesting experiment between bidders. Jiang (2013) builds up an incomplete information static game model to analyze bidders’ behavior and the reason of overestimation of the license plate price. Jiang concludes that bidders in this auction system are irrational and blame the increasing deal price on the imperfection of the auction rule design and immoral speculators. Li (2010) recommends to keep the real-time lowest successful bid price secret in the second stage and cancel the interval restriction of revised bid price. Wang and Luo (2010) compares economic efficiency, minimum deal price and conspiracy probability of discriminatory auction (DA), uniform price auction (UPA) and simultaneous ascending auction (SAA). They find that all three auction approaches are all efficient and hold the opinion that the transformation of Shanghai license plate auction from discriminatory auction to limited time simultaneous ascending auction in 2008 has no significant effect on the lowest deal price. They also find that the bidder population and the number of license plates released has no statistical relationship with the lowest deal price. At the micro level, Hou et al. (2013) compares the consumers’ costs in Beijing lottery system and Shanghai auction system based on their average waiting time. The research shows that the lottery system costs much more than the auction though what purchasers in Beijing feel is opposite. Liao and Holt (2013) conduct an experiment to examine the effect of the 2008 new auction rule on efficiency, license plate prices and revenues. This well controlled test shows that efficiencies for the initial auctions are not higher than the lottery allocation since it weakens the correlation between bids and bidders’ private value, despite prices and revenues are reduced compared with the sealed bid format that permits no bid revisions. From the perspective of public policy implementation, Chen and Zhao (2013) measures the degree to which the public accepts this policy regarding to perceived policy effectiveness, affordability, equity concerns, and implementation. It is interesting to learn that even though most respondents recognize the effectiveness of vehicle ownership restriction policy they hold moderately negative perceptions in terms of the affordability of the license, the effects on equity, and the implementation process. However, the license plate auction is still believed to be more acceptable and effective than vehicle usage control policies, like fuel taxes and parking charges. Regarding to the impacts on associated markets, Xiao et al. (2013) explores how vehicle quota system affects Chinese auto market. They find that in Shanghai vehicle purchasers intend to consume more expensive vehicles since who can afford license plates are less price sensitive. The vehicle ownership restriction pushes out low-income buyers and also indigenous low tier vehicle brands. The research conducted by Hao et al. (2011) indicates that lottery system in Beijing causes limited but immediate reduction in fuel consumption while the limitation of LI, 2014. University of Southern California Page 11 vehicle ownership in Shanghai may “provide large potential of fuel conservation in a long term.” 4. The Model As showed in all the literature above, researchers hold different opinions towards the vehicle quota system, or more specifically, the vehicle license plate auction system, although they all have reasonable models and convincing data. To better simulate the situation households with different income levels may encounter in Shanghai, the first part of this model will examine their choice of travel mode between private vehicle and public transit. People’s travel behavior is a complicated issue and affected by a bunch of factors. However, when it comes to urban transport in the long term, people seem don’t have so many choices. 4.1 Assumptions Assumption 1: To make the model simpler, we assume all households may only travel by private vehicle or by public transit exclusively, which means if they decide to buy a car, they will not take train or bus for urban commute in the future. Actually this is not a strict assumption in many cases since the marginal cost of driving a car is relative low compared with taking public transit while its marginal benefit is much higher. Assumption 2: All households are categorized into two groups: low income ones and high income ones. This assumption is built based on a more reasonable assumption that income level is closely related with a household’s behavior in choosing its major travel mode. Assumption 3: Each household may only buy one private car at most. Actually for Shanghai, this assumption is not strict since most families can only afford one car. 4.2 Households’ sensitivity to license plate price change All households are facing the same budget constraint as follows: 𝑰 = 𝑨 (𝑷 𝒍 + 𝑷 𝒄 + 𝑷 𝒈 ∙ 𝑴 𝒄 ) + 𝑩 (𝑷 𝒕 ∙ 𝑴 𝒕 ) + 𝑷 𝒙 ∙ 𝒙 where 𝑰 is the annual income of the target household; 𝑷 𝒍 is the annual cost of the license plate (which can be derived from the price of the license plate); 𝑷 𝒄 is the annual cost of purchasing a private car (which can be derived from the price of the car); 𝑷 𝒈 is the marginal cost of driving per extra travel unit, in most cases it refers to the gas consumption per mile; 𝑴 𝒄 refers to the amount of annual travel units (can be regarded as mile) by car; 𝑷 𝒕 is the average cost of travelling by public transit per travel unit; 𝑴 𝒕 refers to the amount of annual travel units by public transit; 𝑨 and 𝑩 are parameters equal 0 or 1; 𝑷 𝒙 is the unit price of all other goods; 𝒙 is the amount of units of all the other goods consumed per year. In this equation, we distinguish a typical family’s expenditure on urban travel from other general consumptions. In essence unlike vacation travel or intercity travel, given certain location of home and work place, the travel demand (usually can be measured by the travel distance) is almost fixed, and has very small price elasticity. In this sense, 𝑴 𝒄 and 𝑴 𝒕 change in LI, 2014. University of Southern California Page 12 a very small range. Actually for each household, they will chose between these two functions when A=1, B=0 or B=1, A=0: 𝑰 = 𝑷 𝒍 + 𝑷 𝒄 + 𝑷 𝒈 ∙ 𝑴 𝒄 + 𝑷 𝒙 ∙ 𝒙 (𝒘𝒉𝒆𝒏 𝑨 = 𝟏 𝒂𝒏𝒅 𝑩 = 𝟎 ) 𝑰 = 𝑷 𝒕 ∙ 𝑴 𝒕 + 𝑷 𝒙 ∙ 𝒙 (𝒘𝒉𝒆𝒏 𝑨 = 𝟎 𝒂𝒏𝒅 𝑩 = 𝟏 ) Now we will examine the utility of these two choices. Different from other goods, travel costs time. Generally urban travelers’ utilities associated with urban travel will not change much with the distance growth: how they travel and how long the travel takes are more important. For households with different income levels, time costs are different. Here we have another two assumptions: Assumption 4: To a certain household with a certain level of income, its demand of urban travel is constant, which is𝑴 ; Assumption 5: Households with higher income travel more than those with lower income, i.e. 𝑴 (𝑰 𝟏 ) > 𝑴 (𝑰 𝟐 ), 𝒘𝒉𝒆𝒏 𝑰 𝟏 > 𝑰 𝟐 , or 𝝏𝑴 (𝑰 ) 𝝏𝑰 > 𝟎 When people turn from public transit to private vehicle, they will save money via saving time, have a better travel experience, and of course, pay for the license plate and the car. These changes can be expressed as follows: (1) Money saved by saving time (+): [ 𝑴 (𝑰 ) 𝑽 𝒄 − 𝑴 (𝑰 ) 𝑽 𝒕 ] ∙ 𝑺 (𝑰 ) (2) Gain of utility from better travel experience (+): 𝑼 𝒄 (𝑴 ) − 𝑼 𝒕 (𝑴 ) (3) Cost of car and license plate (-): 𝑷 𝒍 + 𝑷 𝒄 So the total change of utility is: ∆𝑼 = 𝑼 𝑿 [[ 𝑴 (𝑰 ) 𝑽 𝒄 − 𝑴 (𝑰 ) 𝑽 𝒕 ] ∙ 𝑺 (𝑰 ) − (𝑷 𝒍 + 𝑷 𝒄 )] + 𝑼 𝒄 (𝑴 ) − 𝑼 𝒕 (𝑴 ) Where 𝑼 𝒄 and 𝑼 𝒕 are the utility function of traveling by car and traveling by public transit respectively. Even though we cannot give the precise form of these two functions, it is easy to see that 𝑼 𝒄 (𝑴 ) > 𝑼 𝒕 (𝑴 ) since car is more comfortable given a certain travel distance. And also this difference of comfort will become bigger when the travel distance increases, which may expressed as: 𝝏 [𝑼 𝒄 (𝑴 ) − 𝑼 𝒕 (𝑴 )] 𝝏𝑴 > 𝟎 ， 𝑼 𝒄 (𝑴 ) − 𝑼 𝒕 (𝑴 ) > 𝟎 , 𝝏𝑴 𝝏𝑰 > 𝟎 , 𝝏 [𝑼 𝒄 (𝑴 ) − 𝑼 𝒕 (𝑴 )] 𝝏𝑰 > 𝟎 𝑽 𝒄 and 𝑽 𝒕 are the average speed of car and public transit. 𝑺 (𝑰 ) is the hourly time cost, which is a function of income, and 𝝏𝑺 𝝏𝑰 > 𝟎 . 𝑿 is the money that can be paid for other goods, and 𝑼 𝑿 is the utility function of the consumption of other goods. When we have more money to purchase other goods, the utility will increase, but the marginal utility growth will decrease. So we have: LI, 2014. University of Southern California Page 13 𝑼 𝑿 ′ = 𝝏 𝑼 𝑿 𝝏 𝑿 > 0, 𝑼 𝑿 ′′ = 𝝏 ( 𝝏 𝑼 𝑿 𝝏 𝑿 ) 𝝏 𝑿 < 0 Now we may examine the characteristics of the utility change function. When the price of the license plate 𝑷 𝒍 increases, ∆𝑼 will decrease, which means people have less willingness to transfer from public transit to private vehicles if the license plate becomes more expensive. And also given 𝑷 𝒍 and 𝑷 𝒄 , when income 𝑰 becomes higher, ∆𝑼 will increase, which means for richer people, it is more attractive to transfer from public transit to private vehicle. These two conclusions can be expressed as: 𝝏 ∆𝑼 𝝏𝑰 > 𝟎 , 𝝏 ∆𝑼 𝝏 𝑷 𝒍 < 𝟎 Now we may compare the value of ( 𝝏 ∆𝑼 𝝏 𝑷 𝒍 ) between households with different income levels: 𝝏 ( 𝝏 ∆𝑼 𝝏 𝑷 𝒍 ) 𝝏𝑰 = 𝝏 (− 𝝏 𝑼 𝑿 𝝏 𝑿 ) 𝝏𝑰 = 𝝏 (− 𝝏 𝑼 𝑿 𝝏 𝑿 ) 𝝏 𝑿 ∙ 𝝏𝑿 𝝏𝑰 = −𝑼 𝑿 ′′ ∙ 𝝏𝑿 𝝏𝑰 where 𝑿 = [ 𝑴 (𝑰 ) 𝑽 𝒄 − 𝑴 (𝑰 ) 𝑽 𝒕 ] ∙ 𝑺 (𝑰 ) − (𝑷 𝒍 + 𝑷 𝒄 ) so, 𝝏𝑿 𝝏𝑰 > 𝟎 then, 𝝏 ( 𝝏 ∆𝑼 𝝏 𝑷 𝒍 ) 𝝏𝑰 > 𝟎 When income increase, 𝝏 ∆𝑼 𝝏 𝑷 𝒍 will also increase. However, we know that 𝝏 ∆𝑼 𝝏 𝑷 𝒍 < 𝟎 , so when it increases, its absolute value | 𝝏 ∆𝑼 𝝏 𝑷 𝒍 |will become smaller. This indicates that richer households will have less utility difference when the license plate price goes up. So they are much less sensitive to the price change of license plate. 4.3 Private vehicle travel model On the societal level, urban travelers with different income levels have diverse curves of marginal cost and marginal benefit regarding to the private vehicle license plate “market”. In this part, we will discuss the market equilibrium under three scenarios: free market, vehicle quota system with lottery, and vehicle quota system with auction. First, we will examine the basic model of license plate market equilibrium. From the perspective of every single household, the price of license plate is given and fixed. However, from the perspective of the whole society, the entry of every new single vehicle to the road causes externality that the average marginal benefit decreases. LI, 2014. University of Southern California Page 14 Demand curve The demand curve shows that in a free market, for each license plate price (which represents the direct trip cost), how many households may purchase a license plate. As the cost of a license plate decreases, there are more travelers for whom the benefit exceeds the cost, so the city moves downward along the travel demand curve. In this sense, the demand curve is the marginal-benefit curve. For each number of license plates, it shows how much the marginal traveler is willing to pay for the legal right of driving a car. Supply curve On the other side, the supply curve represents the marginal cost of every extra license plate. When more license plates are issued, the road will be more crowed and every extra car will take more time to travel. So the marginal travel cost of the single extra car increases with the escalation of total license plate volume. Furthermore, for the whole traveler community, the issuance of every extra license plate causes more people to travel slower. Hence, every household’s travel cost will increase, which means the social marginal cost is higher than the private marginal cost because of the negative externality. $ License plate price, or trip cost A C Private trip cost B p2 p1 License plate volume Demand curve=marginal benefit n* n2 n1 p* Social trip cost D Figure 6 Basic model LI, 2014. University of Southern California Page 15 Equilibrium and travelers’ welfare As shown in the figure above, B is the point of equilibrium where the private trip marginal cost equals the marginal benefit. However if the number of license plates reaches to n1,, the marginal social cost is higher than the marginal benefit, which indicates the inefficiency of the equilibrium on the societal level. The blue triangle area shows the dead weight loss caused by the gap between marginal social cost and marginal private cost. Point D shows the maximum license plate volume that allow for zero externality of all vehicles. For the whole body of travelers, their welfare is represented by the light green area. The economic logic behind any vehicle quota system policy is to reduce the vehicle population from n1 to n2 to maximize the social welfare. Demand curves of groups with different income In last section we conclude that households with different income levels have different sensitivity to license plate price. This implies that their demand curves have different slopes. For the simplicity of the case, all households are divided into two groups: the poor ones and the rich ones. We assume that there are m0 poor households and m1 rich households in the society, which has m households in total and m=m0+m1 . Besides, we also assume m0 =m1=0.5m. This assumption is helpful for us to examine the welfare change caused by different vehicle ownership restriction policies in a simplified way. Actually in the real world, households’ income are continuously changing in a wide range. So this assumption will be loosened later to stimulate the condition closer to the reality. The demand curves of the rich and the poor may have three different relationships regarding to their slopes as shown in three figures below. There are three demand curves in every figure, the left one is the poor’s demand curve, the right one is the rich’s one, and the orange line is the total demand curve. Now we will look into each case and analyze the effects of vehicle quota system on the equilibrium and households’ welfare. Case A In the first case (Figure 7), the absolute value of the poor’s demand curve slope is much smaller than that of the rich. However, in this case even in the equilibrium without any vehicle ownership restriction, no poor households purchase vehicles for travelling. Here it is worth noting that in a free market that all license plates are supposed to be free. The only reason that people refuse to purchase and use a car is that the trip cost is too high. In case A, all vehicles are consumed by the rich. The area (HCNM-ABC) represents the original rich households’ welfare. Lottery. In this case, if we use lottery to restrict the vehicle population to n2, the poor still will not buy a car since the private trip cost in the new equilibrium is p2, which is higher than p4, the maximum trip cost that can be accepted by the poor. In this sense, given no secondary market permitted, the quota will be allocated among the rich households. Because the average travel cost after quota system being established is p3 , so more rich households will participate in the lottery since their marginal benefits are higher than p3 . As shown in the figure, n3 households will have a try in the lottery (point U and T). It is hard to designate which n2 households out of LI, 2014. University of Southern California Page 16 total n3 households may get license plates. The best result is that all plates are offered to those households who value them most, and the total welfare of the rich households will increase to the area HCNM(=HCPO). However, the expected result is all plates are allocated evenly among all original rich households whose marginal benefit is higher than the private marginal cost (i.e. allocated evenly between S and T in the figure), and the welfare will turn into: ( 𝑛 2 𝑛 3 ∙ 𝐻𝑈𝑇𝑆 − 𝑀𝑁𝐶𝑄𝑆 ) = ( 𝑛 2 𝑛 3 ∙ 𝐻𝑈𝑇𝑆 − 𝑂𝑃𝑄𝑆 ) = ( 𝑛 2 𝑛 3 ∙ 𝐻𝑈𝑇𝑆 − 𝑛 2 𝑛 3 ∙ 𝑂𝑈𝑇𝑆 ) = 𝑛 2 𝑛 3 ∙ 𝐻𝑈𝑂 . Auction. If we use auction to restrict the vehicle population to n2, no poor households will be interested in purchasing vehicle license plates since their private marginal costs are still higher than the marginal benefit. However, auction will take away all the welfare of the rich people. In the discriminatory auction system, the minimum successful bid price is PC=(p2-p3). Theoretically, the total amount of money collected from auction equals the area HCPNM. So here we have to ask another question: how will the government use the money collected from the auction? If the government transfer the money to infrastructure construction, then auction will play a role as a channel to use the rich households’ welfare to subsidize the poor. Case B In the second case (Figure 8), the absolute value of the slope of the poor’s demand curve is a little smaller than that of the rich. Given the free market condition, the poor and the rich License plate price, or trip cost $ Private trip cost License plate volume Total Demand curve=marginal benefit Social trip cost n2 p1 p2 C B J K L H A n1 The poor The rich p3 N M O P p4 Q R S n3 T U T Figure 7 Case A LI, 2014. University of Southern California Page 17 households will have n1p and n1r license plates respectively. And after the ownership restriction being placed, the numbers will decrease to n2p and n2r. In a free market, the dead weight loss is ABC. The total welfare of the poor and the rich is HJBL=(HJCNM-ABC). The poor’s welfare is IGL and the rich’s welfare is HFL. Ideally, if we may reduce the license plate volume to n2, the total welfare will be HJCPO=HJCNM, the welfare of the poor will be IEXO, and the welfare of the rich will be HDYO. Lottery. If we use lottery to restrict the vehicle license plate volume, the total license plate quota is n2. From the personal perspective, the expected average travel cost (i.e. the marginal private cost) after quota system being established is p3 . So more households, both the poor and the rich, will participate in the lottery. As shown in the figure, the total number of participants is n3 (point U), of which n3p are poor households and n3r are rich. The expected result is all plates are allocated evenly among all households whose marginal benefits are higher than the private marginal cost (i.e. allocated evenly between S and T in the figure). More specifically, all the plates will be allocated to 𝑛 𝑙𝑝 poor households and 𝑛 𝑙𝑟 rich households. We have following relationships: 𝒏 𝟐𝒑 + 𝒏 𝟐𝒓 = 𝒏 𝟐 ; 𝒏 𝟑𝒑 + 𝒏 𝟑𝒓 = 𝒏 𝟑 License plate price, or trip cost $ Private trip cost License plate volume Demand curve=marginal benefit Social trip cost n1 n2 n1p n1r n2p n2r p1 p2 A B C E D F G H A I J K A L N M P C U P n3p n3 n3r O P S C T C R C W P V C W’ PC E’ X Y p3 Q C V’ CV Figure 8 Case B LI, 2014. University of Southern California Page 18 𝒏 𝒍𝒑 = ( 𝒏 𝟐 𝒏 𝟑 ∙ 𝒏 𝟑𝒑 ) ; 𝒏 𝒍𝒓 = ( 𝒏 𝟐 𝒏 𝟑 ∙ 𝒏 𝟑𝒓 ) 𝒏 𝟐𝒑 𝒏 𝟑𝒑 = 𝑲𝑬 𝑶 𝑽 = 𝑰𝑲 𝑰𝑶 , 𝒏 𝟐𝒓 𝒏 𝟑𝒓 = 𝑲𝑫 𝑶𝑾 = 𝑯𝑲 𝑯𝑶 , 𝒏 𝟐 𝒏 𝟑 = 𝑲𝑪 𝑶𝑼 , 𝒏 𝟐𝒓 𝒏 𝟑𝒓 > 𝒏 𝟐 𝒏 𝟑 > 𝒏 𝟐𝒑 𝒏 𝟑𝒑 𝒔𝒐 , 𝒏 𝒍𝒑 > 𝒏 𝟐𝒑 , 𝒏 𝒍𝒓 < 𝒏 𝟐𝒓 Hence, the welfare of the poor changes to [(𝐼𝑉 𝑉 ′ 𝑆 − 𝑂𝑉 𝑉 ′ 𝑆 ) ∙ 𝒏 𝟐 𝒏 𝟑 ] = ( 𝑛 2 𝑛 3 ∙ 𝐼𝑉𝑂 ), and the welfare of the rich changes to [(𝐻𝑊 𝑊 ′ 𝑆 − 𝑂𝑊 𝑊 ′ 𝑆 ) ∙ 𝒏 𝟐 𝒏 𝟑 ] = ( 𝑛 2 𝑛 3 ∙ 𝐻𝑊𝑂 ). The total welfare changes to (𝐻𝐽𝑈𝑇𝑆 ∙ 𝒏 𝟐 𝒏 𝟑 − 𝑂𝑃𝑄𝑆 ) = (𝐻𝐽𝑈𝑂 ∙ 𝑛 2 𝑛 3 ) Auction. If we use auction to restrict the vehicle license plate volume, the total license plate quota is n2. This policy will take away all the remaining welfare of the households who purchase the license plate. The minimum license plate price is PC=(p2-p3), and the maximum is HO. The amount of money the government collected from this auction is the area HJCPO=HJCNM. License plate price, or trip cost $ Private trip cost License plate volume Demand curve=marginal benefit Social trip cost n1 n2 n1p n1r A B C J F K L G H p1 p2 I p3 N M P | W V’ V T S W U O R n3r n3p n3 Figure 9 Case C LI, 2014. University of Southern California Page 19 Case C In the third case (Figure 9), the absolute value of the slope of the poor’s demand curve is moderately smaller than that of the rich. Given the free market condition, the poor and the rich households will have n1p and n1r license plates respectively. And after the ownership restriction being placed, the numbers will decrease to 0 and n2 ideally. Lottery. If we use lottery to restrict the vehicle license plate volume, the total license plate quota is n2. From the personal perspective, the expected average travel cost (i.e. the marginal private cost) after quota system being established is p3 . So more households, both the poor and the rich, will participate in the lottery. As shown in the figure, the total number of participants is n3 (point U), of which n3p are poor households and n3r are rich. The expected result is all plates are allocated evenly among all households whose marginal benefits are higher than the private marginal cost (i.e. allocated evenly between S and T in the figure). More specifically, all plates will be allocated to 𝑛 𝑙𝑝 poor households and 𝑛 𝑙𝑟 rich households. Through the same method as in case B, we may get that the welfare of the poor households after lottery being placed is( 𝑛 2 𝑛 3 ∙ 𝐼𝑉𝑂 ), the rich households’ welfare is( 𝑛 2 𝑛 3 ∙ 𝐻𝑊𝑂 ), and the total welfare changes to (𝐻𝐽𝑈𝑂 ∙ 𝑛 2 𝑛 3 ). Actually the most ideal efficient way of allocation keeps the poor households out of the private vehicle market in this case while the lottery system transfer certain amount of welfare to the poor. Auction. If we use auction to restrict the vehicle license plate volume, the total license plate quota is n2. This policy will take away all the remaining welfare of the households who purchase the license plate. The minimum license plate price is PC=(p2-p3), and the maximum is HO. No poor household has a car and all vehicles are owned by the rich. The money the government collected from this auction equals the area HCPO=HCNM. Discussion The chart below provides a brief summarization of all welfare changes discussed above. Table 2 Case A welfare changes Case A Poor Rich Whole Original 0 HBL=HCNM-ABC HBL=HCMN-ABC Ideal 0 HCPO=HCNM HCPO=HCNM Lottery 0 HUO*(n2/n3) HUO*(n2/n3)< HCPO Auction 0 0 HCPO=HCNM Table 3 Case B welfare changes Case B Poor Rich Whole Original IGL HFL HJBL=(HJCNM-ABC) Ideal IEXO HDYO HJCPO=HJCNM Lottery IVO*(n2/n3) HWO*(n2/n3) HJUO*(n2/n3)<HJCPO Auction 0 0 HJCPO=HJCNM LI, 2014. University of Southern California Page 20 Table 4 Case C welfare changes Case C Poor Rich Whole Original IGL HFL HJBL=HCNM-ABJC Ideal 0 HCNM=HCPO HCNM=HCPO Lottery IVO*(n2/n3) HWO*(n2/n3) HJUO*(n2/n3)<HCPO Auction 0 0 HCNM=HCPO Now we have some initial conclusions for these three cases. For the poor households: In case A, the poor households are always kept out of the group of private vehicle travelers. In case B, in the lottery system, compared with the ideal condition, more poor households have the opportunity to get a license plate, and the welfare of the poor is IVO*(n2/n3), which is less than IEXO, as in the ideal condition. In case C, the ideal vehicle restriction method rules out all poor households. So in all three cases, more poor people are able to purchase vehicles in the lottery system but the total welfare change of the poor is not obvious. In terms of the auction system, if the government distributes its fund collected from the auction equally among all households, the poor households will be much better off since in the free market the poor’s welfare is always lower than the rich’s welfare (0<HBL, and IGL<HFL). For the rich households: In case A, the rich households’ welfare increases in ideal condition but the welfare change caused by turning from original to lottery is not easy to measure. Less rich households are able to purchase cars in the lottery system than in the auction system. However, in the auction system, the rich’s welfare is transferred to the poor via the government. The total welfare of all households in the auction system is higher than that in the lottery system. In all three cases, the auction system plays a perfect role of the ideal condition if we only focus on the total welfare. However, in the auction system, only the rich may enjoy vehicles and most of the time the poor are blocked out of the private vehicle market and only benefit from the financial transfer. Extension The model can be extended to simulate the real world. We may divide all the households into more groups and each group has the same population but is in different income level. Based on the analysis in the first section of the model, these groups will have different sensitivity to the change of the license plate price, which means their marginal benefit curves will have various slopes. As shown in the figure below, every group has its own marginal benefit curve with different slope, the orange line is the aggregate total marginal benefit curve. All the other settings are the same as the three simplified dichotomous models in the previous section. In this more generalized model, we chose three groups to analyze their welfare change as listed below in the table. LI, 2014. University of Southern California Page 21 Table 5 Welfare changes for extension model Group 1 Group 2 Group 3 Total Original H1L1L 0 0 HBL Ideal H1K1K+KK1*KO 0 0 HCPO Lottery H1O1O*(n2/n3) H2O2O*(n2/n3) 0 HCUO*(n2/n3) Auction 0 0 0 HCPO When we extend our model to include more groups, we have these observations: 1. Some low-income households never buy cars no matter if a vehicle quota system exists; 2. For high-come households, when the lottery system is placed, the welfare will change but the direction (positive or negative) is not obvious (it is not optimal for sure); 3. Though the lottery system encourages more low-income households to travel by private car, the total social welfare is not optimal as in the ideal condition; 4. The auction system discourages some low-income households from achieving license plates, which is the same as the imaginary ideal condition; License plate price, or trip cost Private trip cost License plate volume Demand curve=marginal benefit Social trip cost $ H1 H2 H3 A U B C P n1 n2 n3 K L O K1 L1 O1 O2 H Figure 10 Extended case LI, 2014. University of Southern California Page 22 5. The auction system (discriminatory auction) allows the government to reallocate social welfare manually, and the total social welfare is optimal which is the same as the ideal condition; 6. Under each condition except auction, the welfare of the rich group is always higher than that of the poor group. These observations apply to the real world since we may continue dividing the households into more and more groups with less income differences. As a conclusion of our model, it is interesting to notice that the balance between lottery and auction, in essence, is the tradeoff between efficiency and equity. The auction has a higher total welfare while the lottery involves more poor households in the urban private traveler club. As a key factor in making decision between auction and lottery, it is how the government allocates its money collected from the auction system that does matter. 5. Empirical illustration and conclusion Now we may look back to the data we have regarding to Shanghai vehicle license plate auction. From the literature review section we have the conclusion that the transfer from discriminatory auction to limited time simultaneous ascending auction in 2008 has no significant effect on the lowest deal price and also the efficiency. This paper doesn’t examine the details of Shanghai auction rules, but in the long run, it may has the same efficiency as the discriminatory auction that the government gains all the welfare from the private vehicle license plate market. The first figure below shows how the monthly license plate quota and the number of bidders change from 2002 to 2014. Compared with the relative stable monthly quota, the bidder population is much more instable since people are easily affected by policy changes and have unsteady estimation of the demand of license plates. The second figure shows the relationship between the bid acceptance probability and the successful bid price in Shanghai from 2002 to 0 20000 40000 60000 80000 100000 120000 140000 160000 2002-01 2002-05 2002-09 2003-01 2003-05 2003-09 2004-01 2004-05 2004-09 2005-01 2005-05 2005-09 2006-01 2006-05 2006-09 2007-01 2007-05 2007-09 2008-01 2008-05 2008-09 2009-01 2009-05 2009-09 2010-01 2010-05 2010-09 2011-01 2011-05 2011-09 2012-01 2012-05 2012-09 2013-01 2013-05 2013-09 2014-01 2014-05 License Plate Quota of the Month Number of Bidders Figure 11 Monthly License Plate Quota and Number of Bidders (2002-2014). LI, 2014. University of Southern California Page 23 2014. Though it shows certain kind of negative correlation between the probability and the price, the regression result shows that this negative correlation is not significant. Figure 12 Bid Acceptance Probability and Successful Bid Price in Shanghai (2002-2014) 0 0.2 0.4 0.6 0.8 1 1.2 0 10000 20000 30000 40000 50000 60000 70000 80000 90000 100000 2002-01 2002-06 2002-11 2003-04 2003-09 2004-02 2004-07 2004-12 2005-05 2005-10 2006-03 2006-08 2007-01 2007-06 2007-11 2008-04 2008-09 2009-02 2009-07 2009-12 2010-05 2010-10 2011-03 2011-08 2012-01 2012-06 2012-11 2013-04 2013-09 2014-02 2014-07 Lowest Successful Bid Price Average Successful Bid Price Bid Acceptance Probability y = -4E-06x + 0.6635 R² = 0.1417 0 0.2 0.4 0.6 0.8 1 1.2 0 20000 40000 60000 80000 100000 Figure 13 Average successful bid price and bid acceptance probability LI, 2014. University of Southern California Page 24 Since the detailed information about the bidders and prices are not available, it is hard to set up a realistic model to verify our findings based on the theoretical model. However, we may have an estimation about what is going on in Shanghai private vehicle license plate auction market. In 2012, the annual disposable income of urban households per capita in Shanghai is CNY 40188 (USD 8000). For most Shanghai households, private vehicles are still expensive. Based on the model, the auction system helps allocate the license plate to those households who value them most and block the poor families out of the private vehicle user group. However, in Shanghai auction system, the most important factor that may influence the whole travelers’ welfare is that how the government uses the money collected from the auction system. In 2013, Shanghai municipal government’s fiscal revenue from the license plate auction was CNY 8.79 billion (USD 1.44 billion), of which almost 7.4 billion (USD 1.2 billion) was used in the same fiscal year. The figure below shows the structure of the auction fund expenditure. Most of the auction fund has been used to subsidize the public transit in Shanghai. The license plate auction plays a key role in the government’s strategy aiming at improving low-income households’ welfare via subsidizing public transit. In this way, low-income households are pushed away from private cars to buses and trains to gain more welfare. Meanwhile we should also pay attention to the governmental investment on highways and other infrastructures serving private vehicles. Since most low-income households cannot share the benefits derived from this part of investment, this reduces the effectiveness of financial transfer payment to the poor through public transportation investments. 1.96, 22% 0.92, 11% 0.59 , 7% 0.58 , 7% 3, 34% 0.35, 4% 1.3, 15% Bus renovation subsidy Bus transfer subsidy Senior bus ticket subsidy Bus facilities mantainance and construction Rail transportation renovation subsidy Other governmental expenditure Surplus Figure 14 Structure of the auction fund expenditure. Data source: Shanghai Municipal Finance Bureau LI, 2014. University of Southern California Page 25 References Chen, X., & Zhao, J. (2013). Bidding to drive: Car license auction policy in Shanghai and its public acceptance. Transport Policy, 27, 39-52. Ernst & Young. (2011). Impact of Beijing’s license quota system on the Chinese automotive industry. Retrieved from http://www.ey.com/Publication/vwLUAssets/Impact_of_Beijings_license_quota_system_ on_the_Chinese_automotive_industry/$FILE/Auto_Beijing.pdf Feng, S. W., Li, Q., & Xu, D. (2014). The private car license plate auction in Shanghai: Macro- effectiveness and micro-Mechanisms. Bridges, 10, 9780784412442-014. Hao, H., Wang, H., & Ouyang, M. (2011). Comparison of policies on vehicle ownership and use between Beijing and Shanghai and their impacts on fuel consumption by passenger vehicles. Energy Policy, 39(2), 1016-1021. Koh, W. T. (2004). Congestion control and vehicle ownership restriction: The choice of an optimal quota policy. Journal of Transport Economics and Policy, 371-402. Liao, E. Z., & Holt, C. A. (2013). The Pursuit of Revenue Reduction: An experimental analysis of the Shanghai license plate auction. Xiao, J., Zhou, X., & Hu, W. M. (2013). Vehicle quota system and its impact on the Chinese auto markets: A tale of two cities. Available at SSRN 2294217. Woo, C. K., Horowitz, I., Luk, S., & Lai, A. (2008). Willingness to pay and nuanced cultural cues: Evidence from Hong Kong’s license-plate auction market. Journal of Economic Psychology, 29(1), 35-53. Li, F. X. (2010). Private vehicle license plate auction: economic analysis of auction factors and process. World Economy Review (China), (10), 68-73. Wang, M. (2013). The past and future of Shanghai vehicle license plate auction. Urban Public Affairs (China), 27(5), 5-12. Jiang H. (2013). An analysis of the private vehicle license plate auction system in Shanghai based on game theory. Finance and Economics (China), 170-172. Ye, Y. (2007). The Reasonableness and legitimacy of Shanghai vehicle quota system. [D] (Doctoral dissertation, Shanghai Jiaotong University). Liu, D. (2008). An analysis of the policy effectiveness of Shanghai vehicle license plate auction based on the perspective of public policy. Industries and Technology Forum (China), 7(1), 130-133. Ye, L., & Yin, M. (2013). An economic analysis of the vehicle license plate restriction policies in China. Transportation and Freight (China), 29(H12), 133-136. Hou, L. W. (2012). An assessment of the license plate auction and the willingness to pay annual license fee based on RDU theory. Journal of Industrial Engineering/Engineering Management (China), 26(2), 168-174. LI, 2014. University of Southern California Page 26 Hou, X., Peng, S. P., & Ma, Y. (2013). Cost analysis of and comparison between Beijing’s car plate lottery and Shanghai’s license auction. China Soft Sciences (China), (11), 58-65. Li. S. Y., Tang, P. Q., & Lan, Q. P. (2013). Analysis and design of the equilibrium of the monopolistic vehicle license plate market. Journal of Chengdu Institute of Public Administration (China), (4), 57-62. Wang, J. T., & Luo, W. (2011). Study on the rules adjustment of vehicle license auction. Journal of Systems and Management (China), (6), 610-617. Luo, W., & Wang, J. T. (2009). Study and practical analysis of vehicle license plate auction. Science Technology and Engineering (China), (6), 1466-1470. Luo, W. (2009). Multi-unit auction theory and its application in automobile license plate [D] (Doctoral dissertation, Shanghai Jiaotong University).

Abstract (if available)

Abstract Shanghai established its private vehicle license plate auction system to restrict the vehicle population in responding to the limited urban highway capacity and traffic congestion. This paper examines the policy’s effects on urban travelers in households with different income levels, and compares the result with the lottery system. The first section of the model looks into the relationship between households’ income and their sensitivity to the license price change. The rich households turn out to be less sensitive while the poor households are more inclined to travel by public transit when the license plate price rises. The second section uses several micro-models to analyze how the welfare of households with different income levels changes in different systems: free market condition, ideal condition, lottery system, and auction system. Finally we find that the auction system blocks poor households out of the private vehicle consumer group while it is efficient as the ideal condition as a whole, and the welfare reallocation is greatly controlled by the government through its expenditure of the auction fund.

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Asset Metadata

Creator Li, Zhi (author)

Core Title Regulation and rights reallocation: how private car license plate auction policy in Shanghai affects travelers’ welfare

School College of Letters, Arts and Sciences

Degree Master of Planning / Master of Arts

Degree Program Planning / Economics

Publication Date 12/08/2014

Defense Date 12/08/2014

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag auction,OAI-PMH Harvest,vehicle license plate,Welfare

Format application/pdf (imt)

Language English

Contributor Electronically uploaded by the author (provenance)

Advisor Cheng, Harrison (committee chair), Heikkila, Eric J. (committee member), Nugent, Jeffrey B. (committee member)

Creator Email zhil@usc.edu,zhilicity@gmail.com

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c3-521377

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