Consumers appear to fully internalize the value of fuel savings associated with increases in fuel economy

See Do Consumers Value Fuel Economy? by Molly Espey. She is a professor of economics at Clemson University. Excerpts:

"I analyzed model year 2001 new car sales to determine if consumers accurately value the savings of improved fuel economy."

"The data used in this analysis include 130 automobile models, list prices, vehicle attributes, and sales quantities for model year 2001 automobiles. In addition to fuel economy, seven general categories of desirable vehicle attributes were considered."

"In addition to desirable vehicle attributes, the negative impact of federal gas guzzler taxes was also taken into consideration. The Energy Act of 1978 established the gas guzzler tax on the sale of new vehicles for which the weighted average fuel economy was less than 22.5 mpg. This tax increases as fuel economy declines for every 1 mpg decrease down to 12.5 miles per gallon, starting at $1,000 and rising to $7,000."

"at fuel prices of $1.50 per gallon, automobile buyers should be willing to pay no more than $560 for a 1 mpg improvement in average fuel economy. To the extent that future fuel savings are discounted, that is, not worth as much as the equivalent dollar amount of fuel savings today, the expected willingness to pay for a 1 mpg improvement would be less than $560. So, do people actually pay what fuel economy improvements are worth in fuel savings."

"The results indicate that for 2001 model year automobiles, consumers valued a 1 mpg improvement in listed city fuel economy at $440, listed highway fuel economy at $242, and average fuel economy at $613."

"automobile consumers in the Unit- ed States do not disregard fuel economy or the potential savings from higher fuel economy."

"Consumers appear to fully internalize the value of fuel savings associated with increases in fuel economy of conventional automobiles at low discount rates, making rational purchasing decisions in terms of fuel expenditures."