Ruhr Economic Papers

Ruhr Economic Papers #72

Do High Oil Prices Matter? Evidence on the Mobility Behavior of German Households

by Manuel Frondel and Colin Vance

RWI, 01/2008, 25 S./p., 8 Euro, ISBN 978-3-86788-076-3

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Abstract

Focusing on travel survey data from Germany, this paper investigates the determinants of automobile travel, with the specific aim of quantifying the effects of fuel prices and fuel economy. The analysis is predicated on the notion that car mileage is a two-stage decision process, comprising the discrete choice of whether to own a car and the continuous choice of distance traveled. To capture this process, we employ censored regression models consisting of Probit and OLS estimators, which allows us to gauge the extent to which sample selectivity may bias the results. Our elasticity estimates indicate a significant positive association between increased fuel economy and increased driving, and a significantly negative fuel-price elasticity, which ranges between -35% and -41%. Taken together, these results suggest that fuel taxes are likely to be a more effective policy measure in reducing emissions than fuel- efficiency standards.

JEL-Classification: D13, Q41

Keywords: Automobile travel; rebound effect; two-part model

Published as:

Frondel, M. and C. Vance (2009), Do High Oil Prices Matter? Evidence on the Mobility Behavior of German Households. Environmental and Resource Economics 43 (1): 81-94.

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