Optimal Switch from a Fossil-Fueled to an Electric Vehicle

Falbo P, Ferrari G, Rizzini G, Schmeck MD (2020) Center for Mathematical Economics Working Papers; 642.
Bielefeld: Center for Mathematical Economics.

Diskussionspapier | Veröffentlicht | Englisch
 
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Falbo, Paolo; Ferrari, GiorgioUniBi; Rizzini, Giorgio; Schmeck, Maren DianeUniBi
Abstract / Bemerkung
In this paper we propose and solve a real options model for the optimal adoption of an electric vehicle. A policymaker promotes the abeyance of a fossil-fueled vehicles through an incentive, and the representative fossil-fueled vehicle's owner decides the time at which buying an electric vehicle, while minimizing a certain expected cost. This involves a combination of various types of costs: the stochastic opportunity cost of driving one distance with a traditional fossil-fueled vehicle instead of an electric one, the cost associated to traffic bans, and the net purchase cost. After determining the optimal switching time and the minimal cost function for a general diffusive opportunity cost, we specialize to the case of a mean-reverting process. In such a setting, we provide a model calibration on real data from Italy, and we study the dependency of the optimal switching time with repect to the model's parameters. Moreover, we study the effect of traffic bans and incentive on the epected optimal switching time. We observe that incentive and traffic bans on fossil-fueled transport can be used as effective tools in the hand of the policymaker to encourage the adoption of electric vehicles, and hence to reduce air pollution.

MSC 2010 classification: 60G40, 91B76, 91G50, 49L20
Stichworte
electric vehicle adoption; real options; stochastic opportunity cost; pollution; incentives; optimal stopping
Erscheinungsjahr
2020
Serientitel
Center for Mathematical Economics Working Papers
Band
642
Seite(n)
26
ISSN
0931-6558
Page URI
https://pub.uni-bielefeld.de/record/2949956

Zitieren

Falbo P, Ferrari G, Rizzini G, Schmeck MD. Optimal Switch from a Fossil-Fueled to an Electric Vehicle. Center for Mathematical Economics Working Papers. Vol 642. Bielefeld: Center for Mathematical Economics; 2020.
Falbo, P., Ferrari, G., Rizzini, G., & Schmeck, M. D. (2020). Optimal Switch from a Fossil-Fueled to an Electric Vehicle (Center for Mathematical Economics Working Papers, 642). Bielefeld: Center for Mathematical Economics.
Falbo, P., Ferrari, G., Rizzini, G., and Schmeck, M. D. (2020). Optimal Switch from a Fossil-Fueled to an Electric Vehicle. Center for Mathematical Economics Working Papers, 642, Bielefeld: Center for Mathematical Economics.
Falbo, P., et al., 2020. Optimal Switch from a Fossil-Fueled to an Electric Vehicle, Center for Mathematical Economics Working Papers, no.642, Bielefeld: Center for Mathematical Economics.
P. Falbo, et al., Optimal Switch from a Fossil-Fueled to an Electric Vehicle, Center for Mathematical Economics Working Papers, vol. 642, Bielefeld: Center for Mathematical Economics, 2020.
Falbo, P., Ferrari, G., Rizzini, G., Schmeck, M.D.: Optimal Switch from a Fossil-Fueled to an Electric Vehicle. Center for Mathematical Economics Working Papers, 642. Center for Mathematical Economics, Bielefeld (2020).
Falbo, Paolo, Ferrari, Giorgio, Rizzini, Giorgio, and Schmeck, Maren Diane. Optimal Switch from a Fossil-Fueled to an Electric Vehicle. Bielefeld: Center for Mathematical Economics, 2020. Center for Mathematical Economics Working Papers. 642.
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2021-01-11T09:37:42Z
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