Purdue University Graduate School
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posted on 2019-08-14, 18:06 authored by Tingmingke LuTingmingke Lu
The purpose of this dissertation is to study the effectiveness of public policies in generating fuel savings and emissions reductions. I focus on applying various empirical methods to analyze consumer responses to policy changes on both extensive and intensive margins. This dissertation consists of two chapters.

In the first chapter, I compare the effectiveness of fuel taxes and product taxes on reducing gasoline consumption of new car buyers. I employ a unified data source for vehicle choice and subsequent vehicle use to estimate a random effects logit demand model that explicitly accounts for vehicle use heterogeneity. My demand estimation suggests that new car buyers fully value the fuel-saving benefits from improved vehicle fuel efficiency when they initially purchase their cars. My policy simulations indicate that high-mileage drivers are more responsive to a change in fuel taxes than to a change in product taxes, even as low-mileage drivers are more responsive to product taxes. By capturing such heterogeneous consumer response to policies, I show that a counterfactual increase of the fuel tax is more effective than a revenue-equivalent product tax in reducing the total gasoline consumption of new car buyers. Further, when accounting for its effects on consumer response on both extensive and intensive margins, a change in fuel taxes has a clear advantage over a change in product taxes in reducing the consumption of gasoline even when the magnitude of tax increase is small. More importantly, a model not accounting for vehicle use heterogeneity understates the fuel saving effects of both policies and misleads us about the relative effectiveness when comparing different policies.

The second chapter explores how changes in the marginal cost of driving affect consumers decisions about passenger vehicle utilization, as measured by average daily miles traveled per vehicle. This intensive margin of consumer response has important implications for the effectiveness of usage-based policies, such as the fuel tax and the mileage tax, that designed to address externalities of driving. I estimate the elasticity of driving with respect to fuel cost per mile using a large panel data that covers 351 towns and cities in Massachusetts over 24 quarters. While most researchers in this literature apply fixed effects estimators to examine the elasticity of driving, I use a factor model econometric setup to account for unobserved common factors and regional heterogeneity. Residual diagnostics confirm that the factor model setup does a better job of removing the cross-section dependence than fixed effects estimators do. Given low consumer responsiveness to changes in the marginal cost of driving engendered by current usage-based policies, rights-based approaches like congestion charges might be better alternatives to influence vehicle utilization and vehicle ownership.


Degree Type

  • Doctor of Philosophy


  • Economics

Campus location

  • West Lafayette

Advisor/Supervisor/Committee Chair

Stephen Martin

Additional Committee Member 2

Trevor S. Gallen

Additional Committee Member 3

Joseph Mazur

Additional Committee Member 4

Justin L. Tobias