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Evaluating the Consumer Response to Fuel Economy: A Review of the Literature

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  • Helfand, Gloria
  • Wolverton, Ann

Abstract

How consumers evaluate trade-offs between the cost of buying additional fuel economy and the expected fuel savings that result is an important underlying determinant of the overall cost of national fuel economy standards. Models of vehicle choice are a means to predict the change in consumers' vehicle purchase patterns, as well as the effects of these changes on compliance costs and consumer surplus. This paper surveys the literature on vehicle choice models and finds a wide range in methods and results. A large puzzle raised is whether automakers build into their vehicles as much fuel economy as consumers are willing to purchase. This paper examines possible reasons why there may be a gap between the amount consumers are willing to pay for fuel economy and the amount that automakers provide, though there is insufficient evidence on the relative roles of these various hypotheses. Further research on the role of fuel economy in consumer vehicle purchases is needed to assist in understanding the welfare effects of fuel economy regulation.

Suggested Citation

  • Helfand, Gloria & Wolverton, Ann, 2011. "Evaluating the Consumer Response to Fuel Economy: A Review of the Literature," International Review of Environmental and Resource Economics, now publishers, vol. 5(2), pages 103-146, May.
  • Handle: RePEc:now:jirere:101.00000040
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    File URL: http://dx.doi.org/10.1561/101.00000040
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    Cited by:

    1. Todd D. Gerarden & Richard G. Newell & Robert N. Stavins, 2017. "Assessing the Energy-Efficiency Gap," Journal of Economic Literature, American Economic Association, vol. 55(4), pages 1486-1525, December.
    2. Ian W.H. Parry & Baoping Shang & Philippe Wingender & Nate Vernon & Tarun Narasimhan, 2016. "Climate Mitigation in China; Which Policies Are Most Effective?," IMF Working Papers 16/148, International Monetary Fund.
    3. Shanjun Li & Joshua Linn & Erich Muehlegger, 2014. "Gasoline Taxes and Consumer Behavior," American Economic Journal: Economic Policy, American Economic Association, vol. 6(4), pages 302-342, November.
    4. James M. Sallee, 2011. "The Taxation of Fuel Economy," Tax Policy and the Economy, University of Chicago Press, vol. 25(1), pages 1-38.
    5. Sallee, James M. & Slemrod, Joel, 2012. "Car notches: Strategic automaker responses to fuel economy policy," Journal of Public Economics, Elsevier, vol. 96(11), pages 981-999.
    6. Bento, Antonio M. & Li, Shanjun & Roth, Kevin, 2012. "Is there an energy paradox in fuel economy? A note on the role of consumer heterogeneity and sorting bias," Economics Letters, Elsevier, vol. 115(1), pages 44-48.
    7. Adenbaum, Jacob & Copeland, Adam & Stevens, John J., 2015. "Do long-haul truckers undervalue future fuel savings?," Finance and Economics Discussion Series 2015-118, Board of Governors of the Federal Reserve System (U.S.).
    8. 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.
    9. Kenneth Gillingham & Karen Palmer, 2014. "Bridging the Energy Efficiency Gap: Policy Insights from Economic Theory and Empirical Evidence," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 8(1), pages 18-38, January.
    10. Todd D. Gerarden & Richard G. Newell & Robert N. Stavins & Robert C. Stowe, 2015. "An Assessment of the Energy-Efficiency Gap and Its Implications for Climate Change Policy," Working Papers 2015.28, Fondazione Eni Enrico Mattei.
    11. Parry, Ian, 2015. "Designing Fiscal Policy to Address the External Costs of Energy," International Review of Environmental and Resource Economics, now publishers, vol. 8(1), pages 1-56, May.
    12. Heather Klemick & Elizabeth Kopits & Keith Sargent & Ann Wolverton, 2014. "Heavy-Duty Trucks and the Energy Efficiency Paradox," NCEE Working Paper Series 201402, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Jan 2014.
    13. Ian Parry & Baoping Shang & Nate Vernon & Philippe Wingender, 2016. "Evaluating Policies to Implement the Paris Agreement: A Toolkit with Application to China," CESifo Working Paper Series 6132, CESifo Group Munich.
    14. Soren T. Anderson & James M. Sallee, 2016. "Designing Policies to Make Cars Greener: A Review of the Literature," NBER Working Papers 22242, National Bureau of Economic Research, Inc.
    15. repec:eee:eneeco:v:72:y:2018:i:c:p:404-415 is not listed on IDEAS
    16. McConnell, Virginia, 2013. "The New CAFE Standards: Are They Enough on Their Own?," Discussion Papers dp-13-14, Resources For the Future.
    17. Helfand, Gloria & McWilliams, Michael & Bolon, Kevin & Reichle, Lawrence & Sha, Mandy & Smith, Amanda & Beach, Robert, 2016. "Searching for hidden costs: A technology-based approach to the energy efficiency gap in light-duty vehicles," Energy Policy, Elsevier, vol. 98(C), pages 590-606.
    18. Daziano, Ricardo A., 2015. "Inference on mode preferences, vehicle purchases, and the energy paradox using a Bayesian structural choice model," Transportation Research Part B: Methodological, Elsevier, vol. 76(C), pages 1-26.
    19. Hackbarth, André & Madlener, Reinhard, 2016. "Willingness-to-pay for alternative fuel vehicle characteristics: A stated choice study for Germany," Transportation Research Part A: Policy and Practice, Elsevier, vol. 85(C), pages 89-111.
    20. Greene, David L. & Evans, David H. & Hiestand, John, 2013. "Survey evidence on the willingness of U.S. consumers to pay for automotive fuel economy," Energy Policy, Elsevier, vol. 61(C), pages 1539-1550.
    21. repec:eee:resene:v:49:y:2017:i:c:p:132-149 is not listed on IDEAS

    More about this item

    Keywords

    Consumer behavior; Vehicle purchase decisions; Fuel economy; Energy paradox; Vehicle choice;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise

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