How are fuel efficient cars priced? Evidence from eight EU countries

Do consumers value the fuel economy of cars? We examine this question taking advantage of the recent introduction of hybrid and battery-electric vehicles, which promise to reduce the use of fossil fuels in road transport, and hence carbon emissions and dependence on oil imports. The price of these vehicles may however create hurdles to their widespread adoption. Automakers claim that these technologies come with higher production costs. Consumers should be willing to pay a price differential for these cars just equal to the savings in fuel costs—unless their utility depends on considerations beyond car quality, performance and fuel economy.