LAUSR

Abstract This paper looks at the effects that environmental policies have on car manufacturers. A standing problem for car manufacturers is determining both a car’s price and its level of energy efficiency. The South Korean government has sustainable goals that encompass saving energy, seeking revenue, and advancing social welfare. This study highlights four decision variables in two groups for the government. The government determines the optimal value of each goal, while maintaining a threshold for the two other goals as constraints. The four decision variables are determining the car sales tax, determining the fuel tax, determining the cost of educating the public about environmental awareness, and determining the percentage of government’s cooperation in the manufacturer’s research and development expenditure. For the purpose of this study, a new function, average of vehicle kilometer traveled in a unit of time (AVKT), is suggested for calculating the average distance driven by a car over a given period of time, based on the cost of fuel, the car’s energy efficiency, the driver’s environmental awareness quotient, and the rebound effect. This newly defined multi-agent problem is solved by looking at the structure of the Stackelberg game, and equilibrium solutions are offered by implementing the backward induction procedure. By considering demand and profit for fuel, this study offers the most efficient goals and strategies for both car manufacturers and fuel producers alike. Finally, this study offers several results and insights.