I'm Smarter Than The New Yorker

This article got me thinking...

The article makes a point against investing in hybrid technology. Their argument is that by making cars more fuel efficient, you essentially lower the cost of driving, which would cause people to drive more. This would negate the positive environmental effects of lowering emissions. However, as someone who would rather see investment in public transit over hybrids, I wish they would have taken it farther.

The article is right in that increasing fuel efficiency affects driving in a similar way as declining gas prices.

But, it's not a simple linear relationship. There is a large chunk of driving that people are going to do regardless, and gas prices affect marginal trips (for example, someone has to go to work everyday, but maybe they'll cut out some errands).

Here is where there is a benefit to increasing fuel efficiency: Lets say prices are at the point where drivers have already cut out most of their discretionary driving (in other words, inelastic demand for driving). These changes in elasticity however don't apply to changes in fuel efficiency. In an environment with inelastic demand, increases in fuel efficiency will always be good, since you'll lower emissions and the resulting lower price of driving will not have that much of an effect on behavior.

The amount someone drives is also not only a function of gas prices, but a function of preferences. Preferences can change. For example, if better public transit alternatives are made available, people will move away from driving without any change in prices.

So, this means that the decision of whether to invest in hybrid technology or public transit can be based off of how people are responding to gas prices. I always thought high gas prices would be better, and would lead towards all sorts of good changes, including moving towards hybrids, but mostly moving away from cars in general and towards public transit.

However, it would be better for prices to stay low! If prices remain low, demand changes a lot with changing gas prices, and increased fuel efficiency wouldn't have that much of an environmental effect.