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Fuel consumption and gasoline prices: The role of assortative matching between households and automobiles

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  • Banzhaf, H. Spencer
  • Kasim, M. Taha

Abstract

Analyses of policies to reduce gasoline consumption have focused on two effects, a compositional effect on the fuel economy of the automotive fleet and a utilization effect on how much people drive. However, the literature has missed a third effect: a matching effect, in which policies change how high-utilization households are matched to fuel-efficient vehicles in equilibrium. We show that higher gas prices should lead to stronger assortative matching. Empirical estimates using US micro-level data are consistent with this hypothesis. We find a $0.50 increase in the gas tax would reduce US gas consumption by 0.8% through the matching effect alone, bringing annual environmental benefits of about $1.7 billion.

Suggested Citation

  • Banzhaf, H. Spencer & Kasim, M. Taha, 2019. "Fuel consumption and gasoline prices: The role of assortative matching between households and automobiles," Journal of Environmental Economics and Management, Elsevier, vol. 95(C), pages 1-25.
  • Handle: RePEc:eee:jeeman:v:95:y:2019:i:c:p:1-25
    DOI: 10.1016/j.jeem.2018.11.010
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    References listed on IDEAS

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    More about this item

    Keywords

    Energy; Gasoline demand; Automobiles;

    JEL classification:

    • 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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