How Much Do Consumers Value Fuel Economy and Performance? Evidence from Technology Adoption

Benjamin Leard, Joshua Linn and Yichen Zhou
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Benjamin Leard: University of Tennessee

The Review of Economics and Statistics, 2023, vol. 105, issue 1, 158-174

Abstract: During historical periods in which U.S. fuel economy standards were unchanging, automakers increased performance but not fuel economy, contrasting with recent periods of tightening standards and rising fuel economy. This paper evaluates the welfare consequences of automakers forgoing performance increases to raise fuel economy as standards have tightened since 2012. Using a unique data set and a novel approach to account for fuel economy and performance endogeneity, we find undervaluation of fuel cost savings and high valuation of performance. Welfare costs of forgone performance approximately equal expected fuel savings benefits, suggesting approximately zero net private consumer benefit from tightened standards.

Date: 2023
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