Estimating Consumer Substitution between New and Used Passenger Vehicles

Benjamin Leard

Journal of the Association of Environmental and Resource Economists, 2022, vol. 9, issue 1, 27 - 49

Abstract: Recent literature has shown the importance of modeling consumer demand for assessing the effects of new passenger vehicle fuel economy and greenhouse gas emissions standards. A relevant feature of demand for making this assessment is how vehicle buyers substitute between new vehicles and other options, such as a used vehicle. In this paper, I estimate this substitution using market-level and second choice data. I estimate a long-run market-price elasticity of demand for new vehicles equal to −0.34. I then explore the implications of this elasticity for assessing the welfare effects of 2021–26 SAFE Vehicles Rule. The simulation results show that applying the estimated elasticity significantly reduces the net benefits of the rule.

Date: 2022
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