Report

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

Summary

Current US passenger vehicle fuel economy and greenhouse gas standards will roughly double fuel economy and cut emissions. Recently tightened standards have reduced fuel costs, but have had roughly zero net effect on consumer well-being.

Key Findings

  • The US Department of Transportation and Environmental Protection Agency are currently reviewing federal fuel economy and greenhouse gas emissions standards, which have been controversial in terms of their effects on vehicle consumers.
  • New analysis of consumer survey data indicates that consumers undervalue fuel economy when purchasing a new vehicle, suggesting that consumers benefit from the fuel savings of tighter standards.
  • However, recently tightened standards have caused automakers to forgo performance improvements.
  • The value of the fuel savings roughly equals the cost of forgone performance improvements to consumers, suggesting roughly zero net private benefits to consumers.

Abstract

During historical periods in which US 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 fi nd undervaluation of fuel cost savings and high valuation of performance. Welfare costs of forgone performance approximately equal expected fuel savings benefi ts, suggesting approximately zero net private consumer benefi t from tightened standards.