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Methods

We use data from the Israel Ministry of Transport and Road Safety. These data include records of all new cars that were sold in Israel between 2007-2018. Each observation in our database represents a unique car product. This unique product is defined by numerous attributes, including manufacturer, brand, year, car category, car weight, engine size, propulsion technology, fuel type, gear type, number of airbags, sunroof, retail price, etc. We employ a differentiated products modeling approach to assess the market under the feebate scheme (Fershtman and Gandal, 1998; Kessler et al., 2023). We then conducted a series of simulations with the objective of estimating the changes in welfare and in pollution to a hypothetical situation in which the feebate scheme was not implemented, and the fixed tax levied before the introduction of the feebate scheme was still in effect. The aim was to compare welfare and pollution levels with versus without the environmental feebate mechanism, a frequent practice in similar studies (eg, Durremeyer, 2022; Fershman et al., 1999).