Attribute Production and Biased Technical Change in Automobiles
Cars have gotten bigger and faster yet more fuel efficient in recent decades. Why? We estimate an equilibrium model of car attribute production using U.S. household microdata for 1995–2017 and structurally decompose attribute trends into underlying mechanisms. We find that technical change led to gains in all attributes. Rising gas prices boosted efficiency but were offset by surging demand for size and acceleration. Efficiency standards were largely ineffective. We show that using technology alone to meet tighter standards quadruples compliance costs, while half the efficiency gain from a fuel-saving technology subsidy is reallocated to other attributes in equilibrium.
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