Abstract
Increasingly stringent fuel economy standards will reduce per-mile driving costs and may raise vehicle miles travelled, which is referred to as the rebound effect. All previous estimates impose at least one of three behavioural assumptions: (a) fuel economy is uncorrelated with other vehicle attributes; (b) fuel economy is uncorrelated with attributes of other vehicles owned by the household; and (c) the effect of gasoline prices on vehicle miles travelled is inversely proportional to the effect of fuel economy. Relaxing these assumptions yields a large and robust rebound effect; a one percent fuel economy increase raises driving 0.2 to 0.4 percent. (Author/publisher)