Design incentives to increase vehicle size created from the U.S. footprint-based fuel economy standards
The recently amended U.S. Corporate Average Fuel Economy (CAFE) standards determine fuel-economy targets based on the footprint (wheelbase by track width) of vehicles such that larger vehicles have lower fuel-economy targets. This paper considers whether these standards create an incentive for firms to increase vehicle size by presenting an oligopolistic-equilibrium model in which automotive firms can modify vehicle dimensions, implement fuel-saving technology features, and trade off acceleration performance and fuel economy. Wide ranges of scenarios for consumer preferences are considered. Results suggest that the footprint-based CAFE standards create an incentive to increase vehicle size except when consumer preference for vehicle size is near its lower bound and preference for acceleration is near its upper bound. In all other simulations, the sales-weighted average vehicle size increases by 2–32%, undermining gains in fuel economy by 1–4mpg (0.6–1.7km/L). Carbon-dioxide emissions from these vehicles are 5–15% higher as a result (4.69×1011–5.17×1011kg for one year of produced vehicles compared to 4.47×1011kg with no size changes), which is equivalent to adding 3–10 coal-fired power plants to the electricity grid each year. Furthermore, results suggest that the incentive is larger for light trucks than for passenger cars, which could increase traffic safety risks.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Austin, David & Dinan, Terry, 2005. "Clearing the air: The costs and consequences of higher CAFE standards and increased gasoline taxes," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 562-582, November.
- Shanjun Li & Christopher Timmins & Roger H. von Haefen, 2009.
"How Do Gasoline Prices Affect Fleet Fuel Economy?,"
American Economic Journal: Economic Policy,
American Economic Association, vol. 1(2), pages 113-137, August.
- Michael Anderson & Maximilian Auffhammer, 2011.
"Pounds that Kill: The External Costs of Vehicle Weight,"
NBER Working Papers
17170, National Bureau of Economic Research, Inc.
- Michael L. Anderson & Maximilian Auffhammer, 2014. "Pounds That Kill: The External Costs of Vehicle Weight," Review of Economic Studies, Oxford University Press, vol. 81(2), pages 535-571.
- Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
- Goldberg, Pinelopi Koujianou, 1998. "The Effects of the Corporate Average Fuel Efficiency Standards in the US," Journal of Industrial Economics, Wiley Blackwell, vol. 46(1), pages 1-33, March.
- Greene, David L. & Patterson, Philip D. & Singh, Margaret & Li, Jia, 2005. "Feebates, rebates and gas-guzzler taxes: a study of incentives for increased fuel economy," Energy Policy, Elsevier, vol. 33(6), pages 757-775, April.
- McGee, John S, 1973. "Economies of Size in Auto Body Manufacture," Journal of Law and Economics, University of Chicago Press, vol. 16(2), pages 239-273, October.
- Norman, Marc E., 1994. "Reducing gasoline use: A multipronged approach," Energy Policy, Elsevier, vol. 22(1), pages 37-39, January.
- Thomas Klier & Joshua Linn, 2012.
"New‐vehicle characteristics and the cost of the Corporate Average Fuel Economy standard,"
RAND Journal of Economics,
RAND Corporation, vol. 43(1), pages 186-213, 03.
- Thomas H. Klier & Joshua Linn, 2008. "New vehicle characteristics and the cost of the corporate average fuel economy standard," Working Paper Series WP-08-13, Federal Reserve Bank of Chicago.
- Kenneth E. Train & Clifford Winston, 2007. "Vehicle Choice Behavior And The Declining Market Share Of U.S. Automakers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(4), pages 1469-1496, November.
- Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:41:y:2012:i:c:p:402-411. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.