The Cost of Fuel Economy in the Indian Passenger Vehicle Market

Resources for the Future Discussion Paper No. 11-12

43 Pages Posted: 30 Dec 2011

See all articles by Maureen Cropper

Maureen Cropper

University of Maryland - Department of Economics; Resources for the Future

Urvashi Narain

World Bank

Randy Chugh

Government of the United States of America - Department of Justice

Multiple version iconThere are 2 versions of this paper

Date Written: March 25, 2011

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, Indian car market, energy paradox

JEL Classification: Q4, L62

Suggested Citation

Cropper, Maureen L. and Narain, Urvashi and Chugh, Randy, The Cost of Fuel Economy in the Indian Passenger Vehicle Market (March 25, 2011). Resources for the Future Discussion Paper No. 11-12, Available at SSRN: https://ssrn.com/abstract=1795331 or http://dx.doi.org/10.2139/ssrn.1795331

Maureen L. Cropper (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
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Urvashi Narain

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Randy Chugh

Government of the United States of America - Department of Justice ( email )

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