Consumer preferences and financial incentives in the Japanese automobile industry

Abstract

We investigate the automobile preferences of consumers and evaluate financial incentives designed to promote automobiles of higher fuel economy in Japan from sales data. We explore two different groups of consumers, namely, general consumers and selective consumers, according to their fuel economy preferences. Then we estimate the effectiveness of financial incentives and the price sensitivity of such incentives to different groups of consumers. We use ordered logit, linear regression, and simultaneous equations. Estimates suggest that only tax incentives are effective for general consumers, thereby implying a need to improve Japanese policies.