Thursday, June 30, 2005

Gasoline diversity

Just look at this map of the patchwork of required gasoline formulations in the U.S (hat tip: Andrew Samwick). I don't know whether or not it would be more efficient to impose a uniform national standard, given the externalities of pollution, etc., but there is a third, superior option. Instead of banning conventional gasoline in favor of a locally mandated formulation, state and local governments should allow many different formulations of gasoline, but tax them in proportion to the pollution costs they are estimated to cause. This would let the market decide which type of gasoline is most efficient for a given locale, with pollution costs balanced against the costs of using an uncommon formulation. This system would also flexibly respond to changing costs, which might change which formulation is optimal.

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