An analysis of the effects of French vehicle inspection program and grant for scrappage on household vehicle transaction

The French government has implemented a periodical vehicle inspection program, which aims at maintaining proper functioning of the vehicle and ensuring the emissions control systems installed on the vehicle work properly. Also, an incentive program for scrapping old vehicles was introduced in 1994 through 1996 to promote the replacement of those vehicles with higher emissions by newer vehicles with lower emissions. A hazard-based duration model of household vehicle transaction behavior has been developed in this study to examine the effects of the inspection program and the grant for scrappage on vehicle transaction timing. The model is developed as a competing risks model assuming the following three types of competing risks: replacing one of the vehicles in the household fleet, disposing of one vehicle in the fleet, and acquiring one vehicle to add to the fleet. The empirical analysis is carried out using the panel data of French households' vehicle ownership from 1984 to 1998, obtained by the panel survey called Parc-Auto, which has been conducted by a French marketing firm, SOFRES, since 1976. The long panel observation period facilitates the introduction of macro-economic indicators into the model, enabling the analysis to distinguish the effects of policy measures from macro-economic factors. The empirical results indicate that the expected vehicle holding duration becomes 1.3 years longer under the inspection program than before the program commenced, given that the vehicle is replaced by another vehicle at the end of the holding duration; and that the conditional probability of replacing a vehicle aged 10 years and over becomes 1.2 times higher, and the average holding duration becomes shorter by 3.3 years, when the grant for scrappage is available.