The Rebound Effect for Passenger Vehicles
Resources for the Future Discussion Paper No. 13-19-REV
43 Pages Posted: 10 Jul 2013 Last revised: 11 Nov 2013
Date Written: November 8, 2013
The United States and many other countries are dramatically tightening fuel economy standards for passenger vehicles. Higher fuel economy reduces per-mile driving costs and may increase miles traveled, known as the rebound effect. The magnitude of the elasticity of miles traveled to fuel economy is an important parameter in welfare analysis of fuel economy standards, but all previous estimates impose at least one of three behavioral assumptions: (a) fuel economy is uncorrelated with other vehicle attributes; (b) fuel economy is uncorrelated with attributes of other vehicles owned by the household; and (c) the effect of gasoline prices on vehicle miles traveled is inversely proportional to the effect of fuel economy. Relaxing these assumptions yields a large effect; a one percent fuel economy increase raises driving 0.2 to 0.4 percent.
Keywords: fuel economy standards, passenger vehicles, vehicle miles traveled, household driving demand
JEL Classification: Q52, R22, R41
Suggested Citation: Suggested Citation