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15 October 2008

Are Fuel Efficient Cars Really the Answer?

A paradox exists in the drive to make cars more fuel efficient. Making cars cheaper to purchase and operate should allow for more people to drive and could lead to an increase in congestion and pollution. In full disclosure, I have no real empirical evidence. Not that I am against making cars smaller, safer, and more fuel efficient. This is just a theory that I think would be interesting to study if I was say... a tenured economist at a university.

There is already one and about to be two cars in the U.S. that cost less than $15,000 and get 40-50 MPG or better. The Smart Fortwo is already here and costs about $12-13K. I've also already mentioned Toyota's iQ that is coming to the U.S. soon under the Scion name.

As cars become cheaper and more fuel efficient it allows more people to drive. The average cost of a car was $28,400 in 2006. The average fuel mileage for a passenger car in 2008 was 27.5 MPG. If these cars cost almost half as much as a conventional mid-size car and get about double the gas mileage it would seem plausible that nearly twice as many people will drive who did not before. Of course this is not necessarily the case. I doubt the relationship between the cost of owning a car and the likelihood of someone owning a car is perfectly linear. At the same time I think it is plausible to say that the relationship could be .5 (pure speculation). Meaning that cutting the cost of owning and purchasing a car in half would lead to a 50% increase in the number of cars on the road.

If this sounds counterintuitive consider that adding more lanes to a road actually increases congestion in the long run by decreasing congestion initially and encouraging more people to drive. Could the same be true of carbon emmisions caused by cheaper more fuel efficient cars?

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