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Energy-saving regulations and commodity prices

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Abstract

This paper studies how environmental regulations affect prices. We use monthly point-of-sale data in the Japanese refrigerator market and employ the hedonic approach. Our central issue of environmental regulations involve two different types: one is the energy-saving regulation by government at the leading runner approach, associated with an eco-label. The second is the non-chlorofluorocarbon regulation resulting from industry self-regulation. As a result of Box–Cox regressions, we find that these environmental regulations result in a rise in price.

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Notes

  1. Many studies modify the model. See for example Ohta and Griliches (1976).

  2. Geoghegan et al. (1997) and Leggett and Bockstael (2000) take into consideration spatial viewpoint.

  3. They conclude that higher price is a signal of higher quality.

  4. Wahl et al. (1995) studies the relationship between price and quality of the Japanese “Wagyu” beef in the hedonic approach. Carew (2000), Veeman (1987) and Wilson (1984) study apple prices and quality in British Columbia, the Canadian wheat market and the malting barley market, respectively.

  5. Anstine (2001) studies a case of cable television using the hedonic approach to estimate how much a consumer will pay for each channel. Similar framework but different outcome and prospects from ours, Itoh (2008) separately studies the Japanese refrigerator market in the literature of business administration and marketing. He discusses policy issues and firm behaviours in detail and then investigates the relationship between environmental policies and pricing strategy. By contrast, our main interest is more conventional econometric analysis on the impact of environmental regulations on price in the framework of economics. We mainly involve rigorous econometric analysis using monthly data and estimate the impact of regulation on price with several econometric models.

  6. A similarly significant impact of eco-labels on consumer behaviour is observed in other studies: eco-labelled apples in Loureiro et al. (2002) and eco-labelled seafood in Johnston et al. (2001).

  7. CFCs were used for cooling medium and bloating agent in refrigerators since the 1930s.

  8. The Kyoto Protocol designated CO2, N2O and CH4 as well as CFC’s substitute (HFC, PFC and SF6) as greenhouse gas.

  9. The law was established in 1979.

  10. Results for log-price model are available upon request.

  11. Let \( \ln p^{1} = \left. {\ln p} \right|_{{{\text{NonCFC}} = 1}} \) and \( \ln p^{0} = \left. {\ln p} \right|_{{{\text{NonCFC}} = 0}} \). Then taking difference we get \( \ln p^{1} - \ln p^{0} = \beta \). The percentage increase in price due to NonCFC regulation, or willingness to pay for NonCFC is \( p^{1} /p^{0} - 1 = \exp (\beta ) - 1 \). Average price is 81000 yen (Table 4).

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Acknowledgments

I deeply acknowledge valuable comments from the editor, two anonymous referees, Robert J.R. Elliott, Matthew A. Cole, and participants of the seminar at the University of Birmingham, UK (13th February 2009). This research is partially financed by Grant-in-Aid for Scientific Research. My deepest appreciation goes to Professor Munehiko Itoh and Research Institute for Economics and Business Administration (RIEB), Kobe University for data access.

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Correspondence to Toshihiro Okubo.

Appendices

Data appendix

1.1 Data source and definitions

All data are taken from the POS data (Raw data “Access-E”) by Gfk Marketing Services Ltd..The POS data covers 90 % of the mass of retailers’ sales and 60 % retailers’ sales in Japan.

P unit:

JPN yen. This denotes the sales price of each product

  • Attributes of products

Age:

Unit: month. This counts the duration since the products came into appearance in the market.

Height:

Unit cm.

Width:

Unit cm.

Depth:

Unit cm.

Capacity:

Unit: litre.

Door (1–6):

Denotes the number of doors

  • Attributes of products by dummy expression.

Side-by-side (0 or 1):

This denotes a side-by-side refrigerator dummy. If the door is side-by-side type, the dummy takes a value of one. If the door is one-side open, the dummy is zero.

Finside (0 or 1):

If the freezer is inside refrigerator, this dummy is unity.

Fbelow (0 or 1):

Freezer is below the refrigerator. If both dummies of finside and fbelow are zero, then freezer is above the refrigerator.

  • Attributes related to environmental regulations

NonCFC (0 or 1):

If the product is CFC free, the dummy has a value of unity.

ENE (from 0):

This variable is the energy-saving attainment index. 100 is the minimum level of energy efficiency which set by the Japanese government in June 1998. As the index value is higher, the product is more efficient and saves more energy.

Appendix

Main text discusses results in every January as a representative case. For robustness check, all other months are estimated. As shown in Tables 7, 8, 9, all results in almost all other months are consistent with main text.

Table 7 OLS results in all other months
Table 8 Box–Cox regressions in all other months (ENE)
Table 9 Box–Cox regressions in all other months (non-CFC regulation)

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Okubo, T. Energy-saving regulations and commodity prices. Environ Econ Policy Stud 15, 93–132 (2013). https://doi.org/10.1007/s10018-012-0041-7

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