Preference or technology? Evidence from the automobile industry

Which comes first in reducing the Carbon Dioxide (CO2) emissions from transportation sector: consumer preference or technological advancement? Using a series of discrete-choice demand models, we estimate for automobiles Japan. Our model explicitly allows preferences fuel economy to evolve over time, and estimation results confirm existence such change. We then simulate behavior, enabling consumers 2010 choose 2016, vice versa. The imply that both advancement are important—without increases consumers’ appreciation fuel-efficient cars, CO2 cannot be reduced.