The Welfare Cost of Beijing’s Lottery Policy—Evidence from a Contingent Valuation Survey
Is Beijing’s vehicle ownership lottery working? This working paper from an international team of scholars delves into the welfare costs of this novel system.
Abstract
Motivated by traffic congestion and air pollution, Beijing is one of several major cities to restrict vehicle ownership. Beijing residents who want to obtain a car must first win a lottery. We examine the welfare cost of preventing people from owning cars using a new survey of Beijing lottery participants that we designed and conducted explicitly for this purpose. We find that restricting vehicle ownership reduced private welfare by 26 billion yuan. Back-of-the-envelope calculations suggest that the benefits of lower congestion and pollution roughly equal the costs. Our WTP estimates indicate a net welfare gain of about 20 billion yuan from replacing Beijing’s lottery with an auction, which is smaller than the gains estimated previously in the literature.
Key Findings
- There is a misallocation of cars among lottery winners and losers. Some individuals with low willingness to pay are able to obtain cars, and others with high willingness to pay are not.
- As part of the study, the authors found that replacing the lottery with an auction (similar to the system set up in the Chinese city of Shanghai) would create a net welfare gain of roughly 20 billion yuan ($3.1 billion USD).
- Lottery winners have a much higher willingness to pay than lottery losers. This implies that entrants who have experienced car ownership have a much higher value for cars.
To read the full working paper, click "Download" above.
Authors
Ping Qin
School of Applied Economics, Renmin University of China
Yifei Quan
School of Applied Economics, Renmin University of China
Antung A. Liu
O’Neill School of Public and Environment Affairs, Indiana University
Jun Yang
Beijing Jiaotong University and Beijing Transport Institute
