Attribute Production and Technical Change in Automobiles (with Asa Watten and Gloria Helfand)

• Environmental and Energy Economics Workshop

Date and Location

Wednesday, May 17, 2023, 4:10 PM - 5:30 PM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

We develop a theory for analyzing technical change and attribute production for light-duty vehicles, which can be applied to other differentiated goods. Applying our theory to survey data on car purchases for 1995–2017, we estimate a 15% annual decline in drive-train related costs. For comparison, the EPA recently proposed year-over-year increases of 1.5 percent in greenhouse gas emissions standards. We estimate that, in terms of foregone fuel economy, the opportunity cost of improving acceleration has tripled during our sample period, while the opportunity cost of car size has increased by half. Yet size and acceleration have both grown unabated. We attribute these trends to growing consumer demand for size and acceleration, which have overpowered rising fuel prices and biased technical change. Fuel economy can be increased either by adding technology or by changing car attributes. Our estimates imply that gas taxes and fuel-economy standards today provide a weaker incentive to add fuel-saving technology, and a stronger incentive to reduce size and acceleration, than 20 years ago. We emphasize the dual role of consumer preferences and technology in driving trends in car attributes over time. By formalizing a theory of attribute production we provide tools for interpreting prior empirical estimates of attribute trade-offs and technical change in the literature.