The goal of the project is to determine the impact of hybrids on the United States automobile market by answering two questions: how much utility have consumers gained from the creation of hybrids, and as a result, how has the composition of the overall U.S. vehicle fleet changed over time? Hybrids, which currently make up a significant and growing portion of the vehicle fleet, have received a great deal of attention in recent years due to their relevance in alternative energy and environmental protection policies. However, while hybrids have factored into discussions on the impacts of gasoline taxes or fuel-efficiency standards imposed on auto manufacturers, the analysis of the overall benefits of hybrids remains incomplete. By using data which track the vehicle holdings of households across a ten-year period, this project will estimate how the creation of hybrids have benefited the nation as a whole, and how much welfare can be expected from further technological advancements in the market. Specifically, the project looks at the period of 1999-2009 and examines the release of the 2004 Toyota Prius and the release of hybrids in general, both of which occur during the observed time. The 2004 Prius is particularly interesting, as it is the first commercially successful hybrid in the United States, and has been the best-selling hybrid in every year. By estimating how consumers might have purchased differently if the Prius and other hybrids had not been available, the research can determine how much value hybrids bring to the market. The datasets used for this project have two distinct advantages over those used in most studies of the automobile market. First, the data track the same households over time. Most of the research done on automobile markets draw on multiple years of data, but take a random sample of households from each year. Since each year of the data contains a new set of households, each family?s unique unobservable tastes (e.g., a love of fast, powerful cars; the resolve to ?drive a car into the ground?) cannot be controlled for in the analysis. As a result, the effect of these tastes merges with the effect of vehicle purchases over time. However, by identifying and controlling for each household over multiple years, this project can control for the tastes effect, isolating the vehicle effect as desired. Second, while most datasets differentiate between vehicles at the level of year, make, and model, the data used for this research also differentiates between gasoline and hybrid trims. Many of the hybrids on the market in the late 2000s are alternative trims of gasoline-powered cars, such as the Honda Civic and Toyota Camry. With this feature in the data, hybrids can be distinguished from other vehicles, making the proposed analysis possible. Additionally, the new model used by the project allows past purchases to directly influence current purchases, a feature not shared by models used by the recent econometrics literature. Previously, estimates of impacts to the vehicle fleet were only applicable ten or more years after the impact, since all consumers needed to be given a chance to respond to the change. By examining past purchases, the model in this project controls for households? tendencies to hold onto cars for several years regardless of impacts to the market, making forecasts two to ten years after the impact possible. The usefulness of the new model is not restricted to the automobile market; it can be applied to many durable-goods markets (e.g., appliances, computers).
