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The Impact of CAFE Standards on Innovation in the US Automobile Industry

Author

Listed:
  • Bento, Antonio M.
  • Roth, Kevin D.
  • Wang, Yiwei

Abstract

The Obama administration seeks to tighten the fuel economy standards in the US and the target is to almost double the miles per gallon (MPG) of vehicles by 2025 comparing to that of 2010. With this new aggressive movement, there is an ongoing discussion about whether auto makers could meet the new standards without providing consumers with vehicles that are much lighter and less powerful. In this paper, we investigate how historical changes in the fuel economy standards impacted technological innovation in the automobile industry and estimate the changes in the rate of innovation in response to the changes in the standards. By decomposing innovation growth into natural growth and growth induced by standard changes, we not only show that standard changes can increase innovation growth but are also able to quantify the induced growth rate with respect to the rate of changes in standards. Such method can provide a more precise prediction of the future technological innovation under new standards.

Suggested Citation

  • Bento, Antonio M. & Roth, Kevin D. & Wang, Yiwei, 2015. "The Impact of CAFE Standards on Innovation in the US Automobile Industry," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 206195, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea15:206195
    DOI: 10.22004/ag.econ.206195
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    File URL: https://ageconsearch.umn.edu/record/206195/files/CAFEpaperAAEA2015.pdf
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    Cited by:

    1. Anna Matas & José-Luis Raymond & Andrés Domínguez, 2016. "Changes in fuel economy: An analysis of the Spanish car market," Working Papers 2016/15, Institut d'Economia de Barcelona (IEB).

    More about this item

    Keywords

    Environmental Economics and Policy; Research and Development/Tech Change/Emerging Technologies; Resource /Energy Economics and Policy;
    All these keywords.

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