Evidence for an endogenous rebound effect impacting long-run car use elasticity to fuel price


Economics Bulletin

October 2011, vol. 31, n°4, pp.2777-2786

Departments: Economics & Decision Sciences, GREGHEC (CNRS)

This paper presents a structural equation model of household fleet fuel efficiency and car use. It allows to weigh the contribution of car equipment changes and car use adjustments to the price elasticity of household demand for fuel. This model is implemented using a panel dataset of 322 households that were present in each annual wave of the French Car Fleet survey from 1999 to 2007. The longitudinal dimension of this dataset enables to assess the short and long-run adjustments at the household level over a period of fuel price increase. The estimated price elasticities of the demand for fuel are fully consistent with the literature: -0.30 in the short run and -0.76 in the long run. Regarding car use elasticities, accounting for an endogenous rebound effect allowed a striking finding: the sensitivity of household car use to fuel price changes is lower on the long run than on the short run. This paper thus not only provides the latest estimations of elasticities for France, in the early 2000's, it also shows that, on the long run, French households have managed to mitigate the impact of increasing fuel prices on their car mobility by using more fuel efficient cars