Project Summary
Congress recently passed legislation increasing vehicle fuel economy standards, but there has been controversy over the “rebound effect,” or the tendency of people to drive more when their cars become more fuel efficient. In a very influential paper, Small and Van Dender (2007) used a dynamic simultaneous equations model to estimate the rebound effect from 1970 – 2001. They found that it has been decreasing during the last decade due to increases in personal income. We have replicated Small and Van Dender’s work and found that some of the overidentifying restrictions on their model are invalid. The proposed work will remedy this by either removing these restrictions and/or finding additional valid ones. Since the likely outcome of this effort will be to decrease the precision of the rebound effect estimates, we will also extend the data set to at least 2006. Although this data extension seems small, it covers a period where gasoline prices increased significantly for the first time in almost twenty years, so extending the data should considerably improve our estimates. The recent legislation will increase fuel economy standards for trucks more than those for cars, and this will lead to relatively higher prices for trucks. We propose to investigate the impact of these changes on the demand for trucks and cars by extending the models in Fang (2008) based on the 2001 National Highway Transportation Survey (NHTS). Unlike most previous work, Fang’s model can parsimoniously handle households with more than two vehicles (about 35% of California households), so the results will be valid for the entire population.
