NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Fuel Consumption and Gasoline Prices: The Role of Assortative Matching between Households and Automobiles

H. Spencer Banzhaf, Taha Kasim

NBER Working Paper No. 22983
Issued in December 2016, Revised in August 2017
NBER Program(s):Environment and Energy Economics

Analyses of policies to reduce gasoline consumption have focused on two effects, a compositional effect on the fuel economy of the automotive fleet and a utilization effect on how much people drive. However, the literature has missed a third effect: a matching effect, in which the policy changes how high-utilization households are matched to fuel-efficient vehicles in equilibrium. We show that higher gas prices should lead to stronger assortative matching. Empirical estimates using US micro-level data are consistent with this hypothesis. We find a $1 gas tax would reduce US gas consumption by 1.5% through the matching effect alone.

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Document Object Identifier (DOI): 10.3386/w22983

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