WP-040: James Archsmith, Kenneth Gillingham, Christopher R. Knittel, and David S. Rapson "Attribute Substitution in Household Vehicle Portfolios" (September 2018)

Roughly three quarters of vehicles are purchased into multi-car households, and economists typically assume that each purchase is independent when estimating models of demand. We develop a novel identification strategy to test this assumption using the universe of household vehicle registration records in California over a six-year period. Our findings show that two-car households exhibit strong substitution of attributes across vehicles when faced with an exogenous change to fuel intensity of a kept vehicle. Beyond calling into question a near-ubiquitous assumption in durable goods demand models in the context of multi-car households, we demonstrate that attribute substitution exerts a strong force that likely erodes a substantial portion of the gasoline savings from fuel economy standards.