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The Cost of Fuel Economy in the Indian Passenger Vehicle Market

Author

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  • Randy Chugh
  • Maureen L. Cropper
  • Urvashi Narain

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.

Suggested Citation

  • Randy Chugh & Maureen L. Cropper & Urvashi Narain, 2011. "The Cost of Fuel Economy in the Indian Passenger Vehicle Market," NBER Working Papers 16987, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16987
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    References listed on IDEAS

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    1. 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, July.
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    4. 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.
    5. 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.
    6. 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 110-114, May.
    7. 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, March.
    8. 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 417-426, August.
    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. repec:eee:jeeman:v:86:y:2017:i:c:p:244-261 is not listed on IDEAS
    2. Grigolon, Laura & Reynaert, Mathias & Verboven, Frank, 2014. "Consumer valuation of fuel costs and the effectiveness of tax policy: Evidence from the European car market," CEPR Discussion Papers 10301, C.E.P.R. Discussion Papers.
    3. Galarraga, Ibon & Ramos, Ana & Lucas, Josu & Labandeira, Xavier, 2014. "The price of energy efficiency in the Spanish car market," Transport Policy, Elsevier, vol. 36(C), pages 272-282.
    4. 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.
    5. Chugh, Randy & Cropper, Maureen, 2014. "The Welfare Effects of Fuel Conservation Policies in the Indian Car Market," Discussion Papers dp-14-33, Resources For the Future.
    6. Arawomo, Damilola F. & Osigwe, Augustine C., 2016. "Nexus of fuel consumption, car features and car prices: Evidence from major institutions in Ibadan," Renewable and Sustainable Energy Reviews, Elsevier, vol. 59(C), pages 1220-1228.
    7. 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.
    8. Hanna Krings, 2015. "International Trade in Second-hand Electronic Goods and the Resulting Global Rebound Effect," MAGKS Papers on Economics 201538, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    9. de Ayala, Amaia & Galarraga, Ibon & Spadaro, Joseph V., 2016. "The price of energy efficiency in the Spanish housing market," Energy Policy, Elsevier, vol. 94(C), pages 16-24.
    10. Miravete, Eugenio J & Moral Rincón, Maria J & Thurk, Jeff, 2015. "Innovation, Emissions Policy, and Competitive Advantage in the Diffusion of European Diesel Automobiles," CEPR Discussion Papers 10783, C.E.P.R. Discussion Papers.
    11. Chugh, Randy & Cropper, Maureen, 2017. "The welfare effects of fuel conservation policies in a dual-fuel car market: Evidence from India," Journal of Environmental Economics and Management, Elsevier, vol. 86(C), pages 244-261.
    12. Gilmore, Elisabeth A. & Patwardhan, Anand, 2016. "Passenger vehicles that minimize the costs of ownership and environmental damages in the Indian market," Applied Energy, Elsevier, vol. 184(C), pages 863-872.
    13. de Ayala, Amaia & Galarraga, Ibon & Spadaro, Joseph V., 2016. "The price of energy efficiency in the Spanish housing market," Energy Policy, Elsevier, vol. 94(C), pages 16-24.

    More about this item

    JEL classification:

    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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