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The Cost of Fuel Economy in the Indian Passenger Vehicle Market

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  • Chugh, Randy
  • Cropper, Maureen

    ()
    (Resources for the Future)

  • Narain, Urvashi

Abstract

To investigate how fuel economy is valued in the Indian car market, we compute the cost to Indian consumers of purchasing a more fuel-efficient vehicle and compare it to the benefit of lower fuel costs over the life of the vehicle. We use hedonic price functions for four market segments (petrol hatchbacks, diesel hatchbacks, petrol sedans, and diesel sedans) to compute 95 percent confidence intervals for the marginal cost to the consumer of an increase in fuel economy. We find that the associated present value of fuel savings falls within the 95 percent confidence interval for some specifications, in all market segments, for the years 2002 through 2006. Thus, we fail to consistently reject the hypothesis that consumers appropriately value fuel economy. When we reject the null hypothesis, the marginal cost of additional fuel economy exceeds the present value of fuel savings, suggesting that consumers may, in fact, be overvaluing fuel economy.

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Bibliographic Info

Paper provided by Resources For the Future in its series Discussion Papers with number dp-11-12.

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Date of creation: 25 Mar 2011
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Handle: RePEc:rff:dpaper:dp-11-12

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Keywords: fuel economy; Indian car market; energy paradox;

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  1. Chugh, Randy & Cropper, Maureen & Narain, Urvashi, 2011. "The cost of fuel economy in the Indian passenger vehicle market," Energy Policy, Elsevier, vol. 39(11), pages 7174-7183.
  2. Molly Espey & Santosh Nair, 2005. "Automobile Fuel Economy: What Is It Worth?," Contemporary Economic Policy, Western Economic Association International, vol. 23(3), pages 317-323, 07.
  3. Shanjun Li & Roger von Haefen & Christopher Timmins, 2008. "How Do Gasoline Prices Affect Fleet Fuel Economy?," NBER Working Papers 14450, National Bureau of Economic Research, Inc.
  4. Atkinson, Scott E & Halvorsen, Robert, 1984. "A New Hedonic Technique for Estimating Attribute Demand: An Application to the Demand for Automobile Fuel Efficiency," The Review of Economics and Statistics, MIT Press, vol. 66(3), pages 417-26, August.
  5. Soren T. Anderson & Ryan Kellogg & James M. Sallee & Richard T. Curtin, 2011. "Forecasting Gasoline Prices Using Consumer Surveys," American Economic Review, American Economic Association, vol. 101(3), pages 110-14, May.
  6. Thomas Klier & Joshua Linn, 2012. "New‚Äźvehicle characteristics and the cost of the Corporate Average Fuel Economy standard," RAND Journal of Economics, RAND Corporation, vol. 43(1), pages 186-213, 03.
  7. Cropper, Maureen L & Deck, Leland B & McConnell, Kenneth E, 1988. "On the Choice of Functional Form for Hedonic Price Functions," The Review of Economics and Statistics, MIT Press, vol. 70(4), pages 668-75, November.
  8. Gloria Helfand & Ann Wolverton, 2011. "Evaluating the Consumer Response to Fuel Economy: A Review of the Literature," NCEE Working Paper Series 200904, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Apr 2011.
  9. Thomas H. Klier & Joshua Linn, 2009. "The price of gasoline and the demand for fuel economy: evidence from monthly new vehicles sales data," Working Paper Series WP-09-15, Federal Reserve Bank of Chicago.
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Cited by:
  1. Chugh, Randy & Cropper, Maureen & Narain, Urvashi, 2011. "The Cost of Fuel Economy in the Indian Passenger Vehicle Market," Discussion Papers dp-11-12, Resources For the Future.
  2. Gilmore, Elisabeth A. & Lave, Lester B., 2013. "Comparing resale prices and total cost of ownership for gasoline, hybrid and diesel passenger cars and trucks," Transport Policy, Elsevier, vol. 27(C), pages 200-208.

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