DO U.S. HOUSEHOLDS FAVOR HIGH FUEL ECONOMY VEHICLES WHEN
GASOLINE PRICES INCREASE? A DISCRETE CHOICE ANALYSIS
Valerie J. Karplus, (617) 894-9015, vkarplus@mit.edu
Ph.D. Candidate, Massachusetts Institute of Technology
Overview
Do households owning multiple vehicles with different on-road efficiencies reallocate usage in response to fuel price fluctuations?
Using nationally-representative cross-sectional data on daily household trips from April 2008 to April 2009 from the 2009 National
Household Transportation Survey (NHTS), this project investigates the relationship between the price of motor gasoline and
household vehicle usage choices, conditional on the number of vehicles owned, the cost savings associated with switching (which
scales with differences in vehicle fuel efficiency), and other vehicle attributes. Assuming household fleets are largely fixed, this
research explores the relationship between vehicle usage choices and the fluctuations in gasoline prices over the survey period.
Initial evidence of switching motivated the application of a discrete choice (fixed-effects logit) model to investigate the impact of
vehicle, as well as household and trip, characteristics on vehicle choice by trip. Preliminary results provide strong evidence that an
increase in the price per mile (the interaction of fuel efficiency in gallons per mile with gasoline price) of driving a particular
vehicle reduces its likelihood of usage for any particular trip. However income, household size, and vehicle occupancy are shown to
offset this propensity to shift to high fuel economy vehicles. This work complements studies that have focused on the relationship
between gasoline price and purchases of high fuel economy vehicles (e.g. Klier & Linn, 2008) and the value consumers place on
energy efficiency more broadly (e.g. Hausman et al., 1979).
This analysis is organized as follows. Section 2 provides a brief literature review and develops theoretical background related to the
household vehicle use response to gasoline price fluctuations. Section 3decribes the data used to investigate the relationship of
interest. Section 4 provides preliminary evidence of a response using elasticity estimates of the VMT and fuel use response to
gasoline price fluctuations. Section 5 describes the application of a fixed-effects discrete choice model and presents the results.
Section 6 offers some conclusions and directions for future work.
Methods
This paper employs econometric methods to estimate the effect of gasoline prices on household vehicle allocation decisions. First, I
estimate elasticities of VMT and fuel use with respect to gasoline price, conditional on characteristics of the household fleet.
Second, the paper estimates a semi-log robust least squares regression to determine how proportional changes in fuel price affected
level changes in the fraction of miles driven in a car for households owning two vehicles (at least one car and either a minivan,
SUV, or truck). Third, to investigate the effect at the individual trip level, a conditional (fixed-effects) logit model was developed
following a procedure similar to Hausman et al. (1995) to investigate the effect of implicit driving cost (price per mile) on vehicle
usage decisions.
Results
First, the paper shows that households owning two or more vehicles with differences in on-road fuel efficiency reduce gasoline use
to a greater extent than they reduce vehicle-miles travelled when gasoline prices rise, by comparing the short-run short run price
elasticities for both gasoline use and VMT.
Second, results of the robust semi-log least-squares regression indicate a positive relationship between the share of miles-driven in
higher fuel efficiency vehicles and proportional changes in gasoline price. In the case of two-vehicle households owning one car
and a second vehicle that was either a minivan, SUV, or truck, the measured increase was significantly different from zero for
households owning a car and an SUV, but not significant in the case of households owning a car and a minivan or a car and a truck.
Third, analysis using the conditional (fixed-effects) logit model finds that price per mile of each vehicle option had a highly
significant and negative effect on household vehicle choice for any given trip. The effect of price per mile on the likelihood of
choosing a particular vehicle type (car, minivan, SUV, or truck) is small but the effect is significant at the 1% level. Household
size, income, trip length, and vehicle occupancy were shown to be negatively correlated with the choice of high fuel economy
vehicles, suggesting important constraints on the household ability or willingness to shift among vehicles.
Conclusions
The results suggest that in the short term, households that own two or more vehicles with different on-road fuel efficiency do shift
among these vehicles in response to gasoline price changes. This shifting behaviour appears to be more prevalent for households
owning two vehicles that are close substitutes, such as a car and SUV. Households owning one car and either a minivan or truck
may purchase the second vehicle to fulfil a specific need and as a result have lower propensity to shift usage. The results of this
analysis show that households vary in terms of their willingness and ability to shift vehicle use, which has important implications
for gasoline demand forecasting. This diversity may be also an important factor in household-level calculations of short-run welfare
loss as a result of fuel price increases (or new fuel taxes).
References
Klier, T. & Linn, J. (2008). The price of gasoline and the demand for fuel efficiency: Evidence from monthly new vehicle sales
data. FRB of Chicago Working Paper No. 2009-15. Chicago, IL: Federal Reserve Bank of Chicago.
Hausman, J.A., Leonard, G.K., & McFadden, D. (1995). A utility-consistent, combined discrete choice and count data model:
Assessing recreational use losses due to natural resource damage. Journal of Public Economics, 56, 1-30.
Hausman, J.A. (1979). Individual discount rats and the purchase and utilization of energy-using durables. The Bell Journal of
Economics, 10(1), 33-54.
Bento, A.M., Goulder, L.H., Jacobsen, M.R., & von Haefen, R.H. (2009). Distributional and efficiency impacts of increased
gasoline taxes. American Economic Review, 99(3), 1-37.