Evaluating Fuel Economy Mandates

An Exploratory Cost-Benefit Analysis

by James P. Stucker, Burke K. Burright, W. E. Mooz

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The first study of the welfare costs expected from the government's current fuel-economy mandate program for new cars. A simulation model of the domestic auto makers' joint-profit-maximizing response to the mandates and to postulated conditions of consumer demand predicts the 1985 equilibrium market outcomes, including: new-car sales, prices, costs, and fuel economy; average annual miles driven and gasoline consumption by car class; and measures of consumers' surplus, industry profits, and changes in the federal budget. Lack of verified information on costs of increasing fuel economy prevents definitive welfare cost estimates, but best currently available information suggests national costs will be about $25 (in 1976 dollars) for each barrel of gasoline conserved when the 27.5 mpg mandate for 1985 is achieved.

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