Working Paper: NBER ID: w16987
Authors: Randy Chugh; Maureen L. Cropper; Urvashi Narain
Abstract: To investigate how fuel economy is valued in the Indian car market, we compute the cost to Indian consumers of purchasing a more fuel-efficient vehicle and compare it to the benefit of lower fuel costs over the life of the vehicle. We use hedonic price functions for four market segments (petrol hatchbacks, diesel hatchbacks, petrol sedans, and diesel sedans) to compute 95 percent confidence intervals for the marginal cost to the consumer of an increase in fuel economy. We find that the associated present value of fuel savings falls within the 95 percent confidence interval for some specifications, in all market segments, for the years 2002 through 2006. Thus, we fail to consistently reject the hypothesis that consumers appropriately value fuel economy. When we reject the null hypothesis, the marginal cost of additional fuel economy exceeds the present value of fuel savings, suggesting that consumers may, in fact, be overvaluing fuel economy.
Keywords: Fuel Economy; Hedonic Pricing; Indian Car Market
JEL Codes: L62; Q4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| marginal cost of fuel economy (D24) | present value of fuel savings (Q47) |
| mean consumer equates marginal price of fuel economy (D11) | present value of fuel savings (Q47) |
| marginal cost of additional fuel economy exceeds present value of fuel savings (R48) | consumers overvaluing fuel economy (D11) |
| consumers pay more for fuel economy (Q41) | save less (D14) |
| fuel economy (Q41) | vehicle price (R48) |