Mileage-Based User Fee Winners and Losers - RAND Corporation

Retail gasoline prices are added to the NHTS by the EIA from the Motor Gasoline Price Survey,
an EIA-conducted survey of retail fueling stations (US EIA 2011c). Retail diesel prices are added
from a separate survey, the On-Highway Diesel Fuel Price Survey, which has poorer geographic
resolution. 27 Prices were matched to household vehicles based on survey date and ZIP code by the
EIA and are made available in the standard NHTS data sets. As retail prices, these include all federal,
state, and local taxes which, in addition to the motor fuel excise taxes, may include sales taxes
depending on the fueling station in the sampling frame. The average retail fuel price in 2008-09 is
$3.08 per gallon, including taxes, with a distribution that ranges from $2.85 to $3.83 per gallon. Price
per mile is calculated by dividing by MPG. In 2008-09, the minimum price is 4.4 cents per mile and
the maximum price is 53.4 cents per mile. 28 The weighted average price is 15.3 cents per mile. 29
Excluded from the household price per mile are several important, but unobserved, costs.
These include maintenance, motor oil, tires, vehicle depreciation, insurance, the occupants’ value of
private risk, and the occupants’ value of time. The costs are challenging to measure consistently
across households because they vary with the cost, weight, and the age of the vehicle (Bento et al.
2009). The Automobile Association of America (AAA) uses a proprietary methodology to calculate
many of these costs for various types of automobiles (AAA 2011). Unfortunately, the methodology
changes periodically so that current values are inconsistent with prior estimates. The approach used
in this study, to exclude these costs, is consistent with much of the literature (Walls and Hanson
1996; Parry and Small 2005; McMullen, Zhang, and Nakahara 2010; Weatherford 2011). 30
Annual Income
Annual income is estimated by the household respondents and it is not a binding constraint
on annual travel expenditures. A household may spend more on travel in a year than household
income and, indeed, 551 observations in the 2009 NHTS do spend more. A household with a lot of
VMT relative to their income may have made an error in estimating their income, may have large
wealth but low income, or may be borrowing against expected future income. In the NHTS, income
is a categorical variable that is converted to a continuous one by taking the median value of each
category. The details are provided in the Technical Appendix.
The expected sign of the coefficient of income is positive. Households with higher incomes,
controlling for the number of workers, generally own more vehicles and travel more per vehicle than
household with lower incomes. In a log-linear econometric model, the coefficient on the natural log
of income, β 2 , may be interpreted as the elasticity of demand with respect to income. This specifies
the percentage change in VMT given a percentage change in income. However, price is also
interacted with income in the full model that is specified in Equation 3.2. The income elasticity of
demand for travel is calculated by differentiating demand with respect to income as in Equation 3.4:
ln M
lnY
i
i
= β 2 + β 7 lnp i (3.4)
27 Retail gasoline prices are matched to stations at the ZIP code level while diesel prices are only available at the Petroleum
Administration for Defense District (PADD) level, of which there are only 5.
28 The most fuel efficient vehicles are Honda Insight and Toyota Prius. The least fuel efficient vehicles are recreational vehicles (RV).
29 Because the range prices are less than $1/mile, the values are negative when then are transformed logarithmically.
30 There are some notable exceptions. In light of the difficulty of estimating these costs noted above, Bento et al. (2009) attempt to
include maintenance and repair costs using a multiplier on per mile fuel costs, setting the multiplier at “90 percent of per mile gas
costs for 2001-2002 autos, 95 percent for 1999-2000 autos, 100 percent for 1995-1998 autos, 105 percent for 1990-1994 autos, and
110 percent for pre-1990 autos.”
Page 34 of 131