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Environmental change and hedonic cost functions for automobiles

S Berry1, S Kortum, A Pakes

  • 1Department of Economics, Yale University, New Haven, CT 06520, USA.

Proceedings of the National Academy of Sciences of the United States of America
|November 12, 1996
PubMed
Summary

Changes in economic and regulatory factors significantly impacted automobile production costs and features. Hedonic cost functions reveal how evolving gas prices and emission standards reshaped the automotive industry landscape over time.

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Area of Science:

  • Automotive Engineering
  • Environmental Economics
  • Industrial Organization

Background:

  • The automobile industry faces continuous shifts due to economic fluctuations and evolving environmental regulations.
  • Understanding the interplay between production costs, product attributes, and external factors is crucial for industry stakeholders.
  • Previous research has explored specific impacts of regulations or economic changes, but a holistic view is needed.

Purpose of the Study:

  • To analyze the impact of economic and regulatory changes on automobile production costs and product characteristics.
  • To quantify how shifts in gas prices and emission standards have altered the cost structure of vehicle manufacturing.
  • To explore the relationship between regulatory policies, market prices, and innovation rates within the automotive sector.

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Main Methods:

  • Estimation of hedonic cost functions to link product attributes with production costs.
  • Time-series analysis to track changes in the cost surface of automobiles.
  • Econometric modeling to assess the influence of gas prices and emission regulations on costs and characteristics.

Main Results:

  • Significant changes in the automobile cost surface were observed, directly correlated with fluctuations in gas prices and the stringency of emission standards.
  • Hedonic cost functions demonstrated that product characteristics evolved in response to regulatory pressures and market demands driven by fuel costs.
  • The rate of patenting in the automotive industry showed a discernible relationship with regulatory changes and energy price dynamics.

Conclusions:

  • Economic and regulatory environments are key drivers of cost and product evolution in the automobile industry.
  • Policy interventions, such as emission standards, demonstrably influence manufacturing costs and vehicle design.
  • Future automotive development will likely continue to be shaped by the dynamic interplay of environmental policy, energy markets, and technological innovation.