A New Hedonic Technique for Estimating Attribute Demand: An Application to the Demand for Automobile Fuel Efficiency

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Abstract
A new hedonic procedure is applied to estimate the effects of gasoline price on the demand for automobile attributes and fuel efficiency. Direct application of a comparative statics analysis circumvents the problems of identification and severe multicollinearity affecting previous hedonic studies. The results indicate that the effect of induced changes in automobile attributes in response to increases in the price of gasoline is to substantially increase fuel efficiency. The estimated elasticities of fuel efficiency with respect to the price of gasoline imply that the long-run own-price elasticity of demand for gasoline is greater than unity.

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