Attribute Substitution in Household Vehicle Portfolios

James Archsmith, Kenneth Gillingham, Christopher R. Knittel, and David S. Rapson

September 2017

Household preferences for goods with a bundle of attributes may have complex substitution patterns when one attribute is changed. For example, a household faced with an exogenous increase in the size of one television may choose to decrease the size of other televisions within the home. We deploy a novel identification strategy to examine how an exogenous change in the fuel economy of a kept vehicle a effects a household's choice of a second vehicle. Our findings suggest that attribute substitution exerts a strong force that may erode a substantial portion of the gasoline savings from fuel economy standards.