The Cost of Fuel Economy in the Indian Passenger Vehicle Market

Randy Chugh, Maureen Cropper and Urvashi Narain

RFF Working Paper Series from Resources for the Future

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.

Keywords: fuel economy; Indian car market; energy paradox (search for similar items in EconPapers)
JEL-codes: L62 Q4 (search for similar items in EconPapers)
Date: 2011-03-25
New Economics Papers: this item is included in nep-ene
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Citations: View citations in EconPapers (16)

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Related works:
Journal Article: The cost of fuel economy in the Indian passenger vehicle market (2011)
Working Paper: The Cost of Fuel Economy in the Indian Passenger Vehicle Market (2011)
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