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Response of new car buyers to alternative energy policies: The role of vehicle use heterogeneity

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  • Lu, Tingmingke

Abstract

This paper compares two policy instruments, fuel taxes and fuel economy-based vehicle purchase taxes, in terms of their effectiveness in stimulating the purchase of cleaner cars. The paper highlights that accounting for vehicle use heterogeneity is crucial for recovering new car buyers’ valuation of expected fuel cost savings from improved vehicle fuel efficiency. Combining a random coefficients logit demand model with a unified data source for car choice and subsequent car usage from Massachusetts, I find little evidence of consumer myopia. In policy counterfactuals, high-mileage drivers are more responsive to tax changes than low-mileage drivers. Moreover, high-mileage drivers are more responsive to changes in fuel taxes than fuel economy-based vehicle purchase taxes. Therefore, fuel taxes are more effective in switching new car buyers to fuel-efficient vehicles for fuel savings and emissions reductions. Importantly, the same implication holds when considering a non-zero elasticity of demand for driving to vehicle fuel efficiency.

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  • Lu, Tingmingke, 2023. "Response of new car buyers to alternative energy policies: The role of vehicle use heterogeneity," Economic Modelling, Elsevier, vol. 120(C).
    • Handle: RePEc:eee:ecmode:v:120:y:2023:i:c:s0264999322004102
    DOI: 10.1016/j.econmod.2022.106173
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    More about this item

    Keywords

    Consumer heterogeneity; Demand estimation; Discrete choice;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise

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