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The effect of vehicle fuel economy standards on technology adoption

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  • Klier, Thomas
  • Linn, Joshua

Abstract

Many countries are tightening passenger vehicle fuel economy standards. This paper provides the first empirical evidence on the effects of fuel economy standards on technology adoption. We investigate changes in the rate and direction of technology adoption, that is, the extent to which technology is used to increase fuel economy at the expense of other vehicle attributes. We find that recent changes in U.S. and European standards have both increased the rate of technology adoption and affected the direction of technology adoption. Producers reduced horsepower and torque compared to a counterfactual in which fuel economy standards remained unchanged. We estimate opportunity costs from reduced horsepower and torque to be economically significant relative to the gains from fuel savings.

Suggested Citation

  • Klier, Thomas & Linn, Joshua, 2016. "The effect of vehicle fuel economy standards on technology adoption," Journal of Public Economics, Elsevier, vol. 133(C), pages 41-63.
    • Handle: RePEc:eee:pubeco:v:133:y:2016:i:c:p:41-63
    DOI: 10.1016/j.jpubeco.2015.11.002
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    More about this item

    Keywords

    Passenger vehicles; U.S. greenhouse gas emissions rate standards; European carbon dioxide emissions rate standards; Technology adoption;
    All these keywords.

    JEL classification:

    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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