Working Paper: NBER ID: w23856
Authors: James Archsmith; Kenneth Gillingham; Christopher R. Knittel; David S. Rapson
Abstract: Household preferences for goods with a bundle of attributes may have complex substitution patterns when one attribute is changed. For example, a household faced with an exogenous increase in the size of one television may choose to decrease the size of other televisions within the home. This paper quantifies the extent of attribute substitution in the context of multi-vehicle households. We deploy a novel identification strategy to examine how an exogenous change in the fuel economy of a kept vehicle affects a household's choice of a second vehicle. We find strong evidence of attribute substitution in the household vehicle portfolio. This effect operates through car attributes that are correlated with fuel economy, including vehicle footprint and weight. Our findings suggest that attribute substitution exerts a strong force that may erode a substantial portion of the expected future gasoline savings from fuel economy standards, particularly those that are attribute-based. Elements of our identification strategy are relevant to a broad class of settings in which consumers make sequential purchases of durable portfolio goods.
Keywords: Attribute substitution; Vehicle portfolios; Fuel economy; Household preferences
JEL Codes: L62; R41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fuel economy of the kept vehicle (R48) | Fuel economy of the purchased vehicle (R48) |
| Gasoline prices (L90) | Fuel economy of the purchased vehicle (R48) |
| Fuel economy of the kept vehicle (R48) | Probability of purchasing a vehicle in the lower fuel economy quartile (C25) |
| Fuel economy of the kept vehicle (R48) | Probability of purchasing a vehicle in the upper fuel economy quartile (C25) |