Automobile technology and tradeoffs: How does automobile footprint affect its fuel economy?

Abstract

It is generally understood that automakers face a tradeoff between fuel economy and other automobile attributes, e.g., size and horsepower. Since the current fuel economy standards are set based on a vehicle’s footprint, we analyze the tradeoffs involved paying special attention to the relationship between fuel economy and footprint. In line with previous studies in the literature, we estimate the technology frontier using automobile specifications data for all car models sold in the U.S. market from 2005 to 2014. We show that while a tradeoff exists between miles per gallon (mpg) and other automobile attributes, automobile footprint has a positive impact on mpg controlling for other vehicle attributes. Taken together, our results imply that the current footprint-based CAFE standard treats larger cars more favorably, creating incentives for carmakers to substitute across models.