Abstract
This paper presents an analysis of a market-based policy aimed at encouraging manufacturers
to develop more fuel efficient vehicles without affecting the car buyer’s choice of
vehicle size. A vehicle’s size is measured by its ‘‘footprint”, the product of track width
and wheelbase. Traditional market-based policies to promote higher fuel economy, such
as higher gasoline taxes or gas guzzler taxes, also induce motorists to purchase smaller
vehicles. Whether or not such policies affect overall road safety remains controversial,
however. Feebates, a continuous schedule of new vehicle taxes and rebates as a function
of vehicle fuel consumption, can also be made a function of vehicle size, thus removing
the incentive to buy a smaller vehicle. A feebate system based on a vehicle’s footprint creates
the same incentive to adopt technology to improve fuel economy as simple feebate
systems while removing any incentive for manufacturers or consumers to downsize
vehicles.