Abstract
Although federal regulation of vehicle fuel economy is often seen as environmental policy, over 70% of the estimated benefits of the 2017–2025 federal standards are savings in consumer expenditures on gasoline. Rational-choice economists question the counting of these benefits since studies show that the fuel efficiency of a car is reflected in its price at sale and resale. We contribute to this debate by exploring why most consumers in the United States do not purchase a proven fuel-saving innovation: the hybrid-electric vehicle (HEV). A database of 110 vehicle pairs is assembled where a consumer can choose a hybrid or gasoline version of virtually the same vehicle. Few choose the HEV. A total cost of ownership model is used to estimate payback periods for the price premiums associated with the HEV choice. In a majority of cases, a rational-choice explanation is sufficient to understand consumer disinterest in the HEV. However, in a significant minority of cases, a rational-choice explanation is not readily apparent, even when non-pecuniary attributes (e.g., performance and cargo space) are considered. Future research should examine, from a behavioral economics perspective, why consumers do not choose HEVs when pricing and payback periods appear to be favorable.
Highlights
The process of technological innovation is challenging, especially as innovators work to commercialize their discoveries
We explore what can be learned about consumer valuation of fuel economy from the proliferation of hybrid-electric vehicle (HEV) that have been marketed to consumers since the Honda Insight and Toyota Prius entered the U.S market in 1999–2000 (McConnell & Turrentine, 2010)
The data described above are used to calculate the payback period for each hybrid relative to its gasoline comparator. This means that we implicitly are focusing on consumers who can decide between the HEV and the gasoline comparator that we have paired with the hybrid
Summary
The process of technological innovation is challenging, especially as innovators work to commercialize their discoveries. The first is that fuel-saving technologies may not pass the consumer’s private benefit-cost test (Gayer & Viscusi, 2013; Mannix & Dudley, 2015). Such technologies are often more expensive to purchase than traditional technologies. Even if the new technology is not more expensive to purchase, it may have drawbacks (e.g., performance, quality, or convenience) that the consumer believes outweigh the private fuel-saving benefits (Small, 2010; Allcott & Greenstone, 2012; Helfand et al, 2016)
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