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Attribute Substitution in Household Vehicle Portfolios

42 Pages Posted: 25 Sep 2017  

James Archsmith

University of California, Davis, Department of Economics, Students

Kenneth Gillingham

Yale University

Christopher R. Knittel

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

David Rapson

University of California, Davis

Date Written: September 2017

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.

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Suggested Citation

Archsmith, James and Gillingham, Kenneth and Knittel, Christopher R. and Rapson, David, Attribute Substitution in Household Vehicle Portfolios (September 2017). NBER Working Paper No. w23856. Available at SSRN: https://ssrn.com/abstract=3042414

James Archsmith (Contact Author)

University of California, Davis, Department of Economics, Students ( email )

Davis, CA
United States

Kenneth Gillingham

Yale University ( email )

New Haven, CT 06511
United States
203-436-5465 (Phone)

HOME PAGE: http://www.yale.edu/gillingham

Christopher R. Knittel

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

David Rapson

University of California, Davis ( email )

One Shields Avenue
Davis, CA 95616
United States

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