Vintage-specific Driving Restrictions

Nano Barahona, Francisco Gallego, and Juan-Pablo Montero

October 2017

Local air pollution problems have led authorities in many cities around the world to impose limits on car use, increasingly through driving restrictions or license-plate bans. With few exceptions, these restrictions tend to be poorly designed, creating incentives for drivers to buy additional, more polluting cars. We study vintage-specific designs that place heavy restrictions on older, polluting vehicles and none on newer, clean ones. A novel model of the car market and evidence from Santiago’s 1992 program, the earliest attempt to use vintage-specific restrictions, are used to show that these restrictions can be welfare enhancing by accelerating fleet turnover towards cleaner cars. These policies can be particularly effective in fighting local air pollution when alternative instruments such as scrappage subsidies and pollution-based taxes are not available.