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Although economic theory suggests that market size and fuel costs affect fuel-saving technology adoption by vehicle manufacturers, there is very little empirical evidence. We document a strong connection between market size, as measured by a vehicle’s sales, and technology adoption. Using a demographics-driven demand shifter to instrument for market size, we find that a 10 percent increase in market size raises power train efficiency by 0.2 percent, compared with a mean improvement rate of 1.4 percent per year between 1997 and 2013. Higher fuel prices affect technology adoption directly by influencing willingness to pay for fuel cost savings, and indirectly by influencing market size. The results have two implications: policies promoting alternative-fuel vehicles will be less effective than previously thought; and fuel taxes have different effects on technology adoption than do fuel economy standards and feebates

Author

Listed:
  • Klier, Thomas

    (Federal Reserve Bank of Chicago)

  • Linn, Joshua

    (Resources for the Future)

  • Zhou, Yichen Christy

Abstract

No abstract is available for this item.

Suggested Citation

  • Klier, Thomas & Linn, Joshua & Zhou, Yichen Christy, 2016. "Although economic theory suggests that market size and fuel costs affect fuel-saving technology adoption by vehicle manufacturers, there is very little empirical evidence. We document a strong connect," RFF Working Paper Series dp-16-26-rev, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-16-26-rev
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    File URL: http://www.rff.org/RFF/documents/RFF-DP-16-26-REV.pdf
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    Cited by:

    1. Lipina, Svetlana (Липина, Светлана) & Smirnova, Olga (Мирнова, Ольга) & Agapova, Elena (Агапова, Елена) & Lipina, A.V. (Липина, А.В.), 2017. "The Development of the 'Green' Economy in Russia: Opportunities and Prospects [Развитие «Зелёной» Экономики В России: Возможности И Перспективы]," Working Papers 051726, Russian Presidential Academy of National Economy and Public Administration.

    More about this item

    Keywords

    passenger vehicles; technological change; market incentives; innovation incentives;
    All these keywords.

    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
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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