Social Influence and the Formation of Markets for Hybrid and Electric Vehicles

Abstract

Multiple new technologies have recently been introduced in the US automotive market in efforts to build markets for alternative fuel vehicles (AFVs), including hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles (PHEVs), and battery electric vehicles (BEVs). However, little attention has been paid to the extent to which these technologies are competitors or complements, shaping the formation of AFV markets. In this paper we explore whether positive peer effects exist between product categories. Our identification strategy exploits a $5,000 income tax credit for ‘Zero Emissions Vehicle’ adoption in the US state of Georgia, for which BEVs were eligible, but not HEVs or PHEVs. Analyzing spatiotemporal new vehicle registrations data, we find that for each 100 BEV sales attributable to the incentive led to a further 3.1 HEV sales, which we attribute to causal peer effects, but 0.6 fewer PHEV sales. Our findings inform automaker technology choices and the design of policies to accelerate AFV adoption.