Optimal switch from a fossil-fueled to an electric vehicle / Paolo Falbo, Giorgio Ferrari, Giorgio Rizzini and Maren Diane Schmeck
VerfasserFalbo, Paolo ; Ferrari, Giorgio ; Rizzini, Giorgio ; Schmeck, Maren Diane
ErschienenBielefeld, Germany : Center for Mathematical Economics (IMW), December 2020
Elektronische Ressource
Umfang1 Online-Ressource (25 Seiten) : Diagramme
SerieCenter for Mathematical Economics Working papers ; 642
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Optimal switch from a fossil-fueled to an electric vehicle [0.86 mb]

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 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 unit distance with a traditional fossil-fueled vehicle instead of an electric one, the cost associated to tra c bans, and the net purchase cost. After determining the optimal switching time and the minimal cost function for a general di usive 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 respect to the model's parameters. Moreover, we study the e ect of tra c bans and incentive on the expected optimal switching time. We observe that incentive and tra c bans on fossil-fueled transport can be used as e ective tools in the hand of the policymaker to encourage the adoption of electric vehicles, and hence to reduce air pollution.

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