An Internal Fuel Efficiency Credit Market Mechanism For Meeting The CAFE Standard : Internalizing A Regulation Caused Externality
This paper uses an experimental testbed methodology to analyze an internal market for Fuel Efficiency Credits (FEC) that might be used to enable a vehicle manufacturer to meet the CAFE standards most profitably while operating as a decentralized decision-maker. The CAFE standard creates an externality between otherwise decentralized organizations within the company. The main issue addressed is whether a special market architecture in which decisions are made by decentralized divisions subject to a system-wide CAFE standard regulation is profit-maximizing from an integrated company point of view given the CAF? constraint.