WEAI/AERE 2009 - Individual Paper Abstract
Title: The Demand for Fuel Economy in the Indian Passenger Vehicle Market
Author(s): Randy Chugh, University of Maryland; Maureen L. CROPPER, University of Maryland and Resources for the Future; Urvashi Narain, World Bank (photo credit: Erica Johnson, Gonzaga University)
Abstract:
Concerns about greenhouse gas emissions and energy security have prompted many countries to enact fuel economy standards for passenger vehicles. The Indian Planning Commission has identified the production and use of more fuel-efficient passenger vehicles as a means of reducing energy consumption and carbon emissions; however, the government has stopped short of adopting fuel economy standards for passenger vehicles. It has only recently required that kilometer per liter information be made public when vehicles are sold, although such information has historically been available through the private sector.
The goal of this paper is to examine the cost to Indian consumers of purchasing more fuel efficient vehicles, and to estimate the welfare effects of imposing fuel economy standards in the Indian passenger vehicle market. We begin by estimating hedonic price functions for passenger cars, which describe the marginal cost to consumers of purchasing more fuel efficient vehicles, holding other vehicle characteristics constant. We estimate these functions for the years 2002 through 2007 to investigate how this cost has changed over time and how it compares to the fuel savings associated with more fuel efficient vehicles.
We also estimate discrete choice models of the demand for passenger vehicles as a function of vehicle characteristics. Specifically, we use data on the market shares of various makes and models and their characteristics, and on the attributes of car buyers, to estimate models of the demand for vehicle characteristics (Petrin, 2002; Berry, Levinsohn and Pakes, 1995, 2004). These models enable us to evaluate the welfare effects to consumers of changes in fuel economy and other vehicle features. In addition to estimating the welfare effects of fuel economy standards, we are able to examine the effects of introducing an inexpensive car--e.g., the Tata Nano--on vehicle demand and fleet fuel economy.