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Fuel Efficiency and Motor Vehicle Travel: The Declining Rebound Effect

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  • Kenneth A. Small
  • Kurt Van Dender

Abstract

We estimate the rebound effect for motor vehicles, by which improved fuel efficiency causes additional travel, using a pooled cross section of US states for 1966-2001. Our model accounts for endogenous changes in fuel efficiency, distinguishes between autocorrelation and lagged effects, includes a measure of the stringency of fuel-economy standards, and allows the rebound effect to vary with income, urbanization, and the fuel cost of driving. At sample averages of variables, our simultaneous-equations estimates of the short- and long-run rebound effect are 4.5% and 22.2%. But rising real income caused it to diminish substantially over the period, aided by falling fuel prices. With variables at 1997-2001 levels, our estimates are only 2.2% and 10.7%, considerably smaller than values typically assumed for policy analysis. With income and starting fuel efficiency at 1997-2001 levels and fuel prices 58 percent higher, the estimates are still only 3.1% and 15.3%, respectively.

Suggested Citation

  • Kenneth A. Small & Kurt Van Dender, 2007. "Fuel Efficiency and Motor Vehicle Travel: The Declining Rebound Effect," The Energy Journal, , vol. 28(1), pages 25-52, January.
    • Handle: RePEc:sae:enejou:v:28:y:2007:i:1:p:25-52
    DOI: 10.5547/ISSN0195-6574-EJ-Vol28-No1-2
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