Two-Stage Hedonic Price Model for Light-Duty Vehicles

Consumers’ marginal willingness to pay for a unit change of automotive fuel economy was estimated through development of a hedonic regression of new automobiles sales. The research combined national data on vehicle attributes with a unique data set that contains demographic information on all new vehicles registered in Maine in 2007. The research estimates the impact of demographic factors on consumer demands for fuel economy by generating a function for fuel economy demand in a second-stage hedonic model. Results show that consumers undervalue the long-run fuel savings of vehicle ownership, but they significantly value short-run fuel savings. Age and education are positively correlated with fuel economy demand, whereas income is statistically insignificant. Car consumers’ net benefits from an increase in fuel economy from 25 to 35 mpg are computed from the fuel economy demand curve and are approximately $2,232. Strengthening corporate average fuel economy standards is reasonable because consumers can receive significant net benefits from increasing fuel economy.