THE DEMAND FOR VANITY (PLATES): ELASTICITIES, NET REVENUE MAXIMIZATION, AND DEADWEIGHT LOSS

Authors

  • Erik D. Craft

    1. Craft: Associate Professor, Department of Economics, Robins School of Business, University of Richmond, Richmond, VA 23173. E-mail ecraft@richmond.edu
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      This is a revision of a paper presentd at the Western Economic Association International 74th annualconference in San Diego on July 9, 1999. I wish to thank James Kimball, Marcy Kaplan, and Sylvia Williams at the Virginia Department of Motor Vehicles for their assistance with the license plate data and James Kimball, Kevin Beam, Robert Nicholson, Robert Schmidt, Bill Ross, Robert Archibald, and anonymous referees for their research support from the University of Richmond is gratefully acknowledged.


Abstract

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%.

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