Can subsidy programs lead consumers to select "greener" products?: Evidence from the Eco-car program in Japan

The Japanese government has introduced a subsidy program called the "Eco-car program" between 2009 and 2012. In this study, we apply a nested logit model to micro-level data on vehicle selection from the National Survey of Family Income and Expenditure in order to identify the types of households that switched from conventional gasoline vehicles to hybrid electric vehicles (HEVs) using this subsidy program. Our analyses demonstrate that more higher-income households that used compact gasoline vehicles (CGVs) prior to the Eco-car program made a drastic switch to HEVs using the subsidy than those that used regular gasoline vehicles (RGVs). Furthermore, the results suggest that households' decision-making processes on vehicle selection have changed as consumers began choosing their vehicles more flexibly after the subsidy program. These findings suggest that subsidy programs did not only contribute to the promotion of energy-saving products, but also to the generalization of consumers' product selection.