Auto buybacks backfire

In my post, Gun Buyback Misfires, I pointed out that a) gun buybacks encourage people to turn in old, low-quality guns that are unlikely to be used in any case and b) gun buybacks can encourage people to buy and hold more guns because the buyback is a form of insurance, if the gun gets old or stops working you can sell it to the police.

In an excellent post Steve Levitt points out that Alan Blinder’s proposal for auto buybacks suffers from exactly the same problems.

…the majority of vehicles that are turned in will not have been driven much, if
at all. Indeed, I suspect one of the most visible responses to this program will
be a new market for mechanics fixing up cars that don’t run at all just enough
so that they can be driven to the government’s lot to collect the cash.

The biggest problem with this policy, however, is the way it distorts long
run incentives. Let’s say the rules of the program say that a car must be at
least fifteen years old to qualify for a big government subsidy to scrap it.
This gives powerful incentives to people with twelve-year-old cars they were
planning on scrapping to keep driving them for three more years to collect the
government bounty. Instead of reducing the number of clunkers on the road, this
program could actually lead to an increase!


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