We estimate the rebound effect for motor vehicles, by which improved fuel efficiency causes additional travel, using a cross-sectional time series of 50 US states plus the District of Columbia from 1966 to 2001. Our method accounts for endogenous changes of fuel efficiency in response to regulation, prices, and other factors, it incorporates a measure of the stringency of the corporate average fuel economy (CAFE) standards, it distinguishes between autocorrelation and lagged effects, and it allows the rebound effect to depend on levels of income and of urbanization. We find that the endogeneity correction strongly reduces the estimated rebound effect, that the long-run effect is substantially larger than the short-run effect, and that the rebound effect declines with income. Our preferred (3SLS) estimate of the rebound effect at sample averages of income and urbanization is 5.2% for the short run and 24% for the long run. We also find that CAFE regulations have a moderate effect on fuel efficiency of new passenger vehicles, which began immediately upon their implementation and peaked in 1984.

Consider two firms, at different locations, supplying a homogenous good at constant marginal production cost. Consumers incur travel costs to the firm for each unit purchased, and the travel costs increase with the amount of travel to each firm (congestion). When all traffic and all congestion are generated by travel to a duopolist, both the Nash-Bertrand equilibrium prices and the Nash-Cournot equilibrium prices exceed the sum of the marginal production cost and the marginal external travel cost. However, when the road is shared by travelers to the duopolists’ facilities and travelers in competitive markets, the Nash-Bertrand duopoly price equals the competitive price and the Nash-Cournot price contains a markup.

We estimate the rebound effect for motor vehicles, by which improved fuel efficiency causes additional travel, using a panel of US states for 1966-2001. Our model accounts for endogenous changes in fuel efficiency, distinguishes between autocorrelation and lagged effects, includes a measure of the stringency of fuel-economy standards, and interacts the rebound effect with income. At sample averages of variables, our 3SLS estimates of the short- and long-run rebound effect are 4.7% and 22.0%. But they decline substantially with income: with variables at 1997-2001 levels they become 2.6% and 12.1%, considerably smaller than typically assumed for policy analysis.

We study the duopolistic interaction between congestible facilities that supply perfect substitutes. Firms are assumed to make sequential decisions on capacities and prices. Since the outcomes directly affect consumers’ time cost of accessing or using a facility, the capacity sharing rule is endogenous. We study this two-stage game for different firm objectives and compare the duopoly outcomes with those under monopoly and at the social optimum. Our findings include the following. First, for profit maximizing firms both capacity provision and service quality, defined as the inverse of time costs of using the facility, are distorted under duopoly: they are below the socially optimal levels. This contrasts with the monopoly outcome, where pricing and capacity provision are such that the monopolist does provide the socially optimal level of service quality. Second, duopoly prices are lower than monopoly prices, but higher than in the social optimum. Hence, while price competition between duopolists yields benefits for consumer, capacity competition is harmful. Third, price-capacity competition implies that higher capacity costs may lead to higher profits for both facilities. Finally, if firms also care about output, this mainly affects pricing behavior; strategic interaction in capacities are much less affected. If duopolists attach a higher weight to output and a correspondingly lower weight to profits, this leads to a deterioration of the quality of service.

This paper empirically investigates the impact of airport and airline supply characteristics on the air travel choices of passengers departing from one of three San Francisco Bay area airports and arriving at one of four airports in greater Los Angeles. It does so by estimating a conditional logit model for the market of air travel between both metropolitan areas in 1995, and using the estimated model to simulate three counterfactual scenarios. First, reducing access times to San Francisco International airport by 10% for all travelers increases the market share of that airport by 4.5%-point. United Airlines benefits from the reduced access times, as its market share increases by 2.9%-point. Second, reducing average delays at San Francisco International airport by 10% has similar aggregate effects to the first scenario, but indicates that leisure travelers value access time reductions more than reduced delays. Third, entry of Southwest airlines in San Francisco International airport increases the market share of Southwest airlines by 5%-point to 15-%point, depending on assumptions concerning its continuation of services at Oakland International Airport, and assuming that rival carriers do not respond in terms of prices or service levels.