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Attribute substitution in household vehicle portfolios
Author(s) -
Archsmith James,
Gillingham Kenneth T.,
Knittel Christopher R.,
Rapson David S.
Publication year - 2020
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12353
Subject(s) - substitution (logic) , portfolio , cash , substitution effect , business , economics , econometrics , agricultural economics , finance , microeconomics , computer science , programming language
Abstract Roughly three quarters of vehicles are purchased into multi‐car households. We study whether households are willing to substitute attributes, such as fuel economy, across vehicles within their portfolio. We develop a novel strategy to separately identify idiosyncratic preferences for an attribute from these within‐portfolio effects. Using the universe of household vehicle registration records in California over a 6‐year period, we find that two‐car households exhibit strong substitution across vehicles when faced with an exogenous change to fuel intensity of a kept vehicle. This effect can erode a substantial portion of the benefit from major policies, such as Cash‐for‐Clunkers.