Title: Negative Rebound: Fuel Economy Standards and Miles Traveled
Abstract: We revisit the direct rebound effect in the case of fuel economy standards, studying two negative components: that is, fewer miles driven when cars are regulated to be more efficient. The first negative component comes from the feature that vehicles and miles are complements in utility: when more, or more luxurious, cars are present the value of a marginal mile increases. Fuel economy regulation tends to reduce luxury and quantity by increasing vehicle cost, creating a negative effect on household-level miles that competes with the well established feature that lower fuel cost encourages driving. Second, we allow for a portion of a vehicle's depreciation to attach to miles. Increased purchase prices under regulation therefore fall partly on miles, again reducing driving. A simple quantitative model demonstrates the importance of our results in making policy. We combine existing estimates of the short-run rebound effect with data on driving patterns in multi-vehicle households. Under a range of reasonable assumptions the net effect of fuel economy regulation is to reduce miles driven, not increase them as has often been assumed.