The effects of fuel prices and vehicle sales on fuel‐saving technology adoption in passenger vehicles

Although economic theory suggests that both sales and fuel costs affect technology adoption by vehicle manufacturers, there is very little empirical evidence on either effect. We document a strong connection between a vehicle's sales and its energy efficiency. Using a demographics‐driven demand...

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Bibliographic Details
Published in:Journal of economics & management strategy 2020-07, Vol.29 (3), p.543-578
Main Authors: Klier, Thomas, Linn, Joshua, Zhou, Yichen C.
Format: Article
Language:English
Subjects:
Cost control
Economic theory
Energy efficiency
Fuel economy standards
Fuels
Prices
Sales
Savings
Taxation
Technology
Technology adoption
Vehicles
Willingness to pay
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Summary:Although economic theory suggests that both sales and fuel costs affect technology adoption by vehicle manufacturers, there is very little empirical evidence on either effect. We document a strong connection between a vehicle's sales and its energy efficiency. Using a demographics‐driven demand shifter to isolate demand‐side changes in sales, we find that a one standard deviation increase in sales raises efficiency by 0.2%, compared with a mean improvement rate of 1.4% per year between 1997 and 2013. Higher fuel prices also increase technology adoption directly by increasing willingness to pay for fuel cost savings. The results have two implications: manufacturers will continue to focus technological improvements on top selling vehicles; and fuel taxes will have larger effects on technology adoption than fuel economy standards and feebates.
ISSN:1058-6407
1530-9134
DOI:10.1111/jems.12384