NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Cost of Fuel Economy in the Indian Passenger Vehicle Market

Randy Chugh, Maureen L. Cropper, Urvashi Narain

NBER Working Paper No. 16987
Issued in April 2011
NBER Program(s):   EEE

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.

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Document Object Identifier (DOI): 10.3386/w16987

Published: Chugh, Randy & Cropper, Maureen & Narain, Urvashi, 2011. "The cost of fuel economy in the Indian passenger vehicle market," Energy Policy, Elsevier, vol. 39(11), pages 7174-7183. citation courtesy of

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