Vehicle Fuel Efficiency and the Rebound Effect: Evidence from a U.S. Panel Data (joint research with Hocheol Jeon, Iowa State University)
U.S. efforts to reduce the carbon footprint of its transportation sector have long centered around the Corporate Average Fuel Economy (CAFE) standards. A concern with such initial vehicle efficiency requirements is that people may drive more as the effective cost of driving is reduced. This so-called `rebound effect' could offset much of the gains in terms of reduced of energy consumption sought through the vehicle efficiency standards. While there is already substantial literature on the direct rebound effect, virtually all the research has relied upon cross-sectional household level data, aggregate panel data, or time-series data, with only Frondel and his co-authors employing household level panel data (the German Mobility Panel) to investigate the rebound effect (see Frondel et al. 2008, 2012, 2013). This paper analyzes the rebound effect using vehicle choice and usage information from the Panel Study of Income Dynamics (PSID), yielding a household level panel data base for 1999 through 2011. For comparison, we implement several estimation strategies, including pooled OLS, random and fixed effects models, as well as an instrumental variable model. Finally, we examine the variation in the rebound effect across income deciles.