Vehicle choice and utilization: Improving estimation with partially observed choices and hybrid pairs

Abstract

This paper exploits differences in fuel efficiency between hybrid vehicles and their gasoline counterparts to investigate two key questions relating to fuel economy standards: whether consumers properly value fuel economy (the energy paradox) and whether improved fuel efficiency increases travel (the rebound effect). Several vehicles, such as the Honda Civic, are available in both hybrid and gasoline versions. Such vehicles share many of the same attributes, with the main difference being fuel efficiency, and provide a unique setting to examine these issues. We emphasize methodological and data issues that typically have not been a focus in prior studies, such as partial observability, endogeneity, and measurement error. Estimates of the rebound effect and consumer valuation of fuel economy remain imprecise despite the use of the detailed household level data and sound methodology to handle limitations with these data. The inability to precisely estimate these important policy questions suggests it is useful to obtain reliable, detailed data on household vehicles, paired with rich household- and person-level survey data.