Premium
THE DEMAND FOR VANITY (PLATES): ELASTICITIES, NET REVENUE MAXIMIZATION, AND DEADWEIGHT LOSS
Author(s) -
Craft Erik D.
Publication year - 2002
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1093/cep/20.2.133
Subject(s) - revenue , economics , liberian dollar , deadweight loss , license , price elasticity of demand , microeconomics , marginal cost , population , econometrics , finance , welfare , market economy , political science , law , demography , sociology
States raise revenue and provide a service when offering to personalize license plates. To determine the revenuE‐maximizing price and the marginal deadweight loss per dollar of net revenue, one must estimate both the slope and shift factors of the demand for vanity license plates. Shift factors include the percentage of special background plates sales (price of a complement), the requirement of front and back license plates (preferences), the age distribution (population), and income. Each $1 increase in the annual cost of owning a vanity plate reduces the final percentage of all plates personalized by 0.08%. At least ten states continue to charge a price exceeding the revenuE‐maximizing level. Many other states raise funds whose marginal social cost exceeds marginal net revenue by over 100%.