Andrea Matranga's Blog

As most of you already know, Volkswagen was recently caught cheating on emission tests. But were they really alone in doing so? The EPA data shows some suspicious patterns. Without getting too technical (in any case, the specifics are still unclear), there's a tradeoff between fuel efficiency, and NOx emissions. So for a given level of performance, the software that controls a modern diesel engine can be tuned so that it is more fuel efficient, but produces more NOx, or it can be tuned so that it is less fuel efficient, but produces less NOx. Since Volkswagen had problems meeting the NOx standards in the US, they decided to introduce software that detected when an emission test was being performed, and tuned the engine so as to decrease NOx production, in the process potentially worsening fuel economy relative to regular driving conditions. One possible outcome of this procedure is that the cars involved might actually have better fuel economy in real life conditions, tha...

The average american family consumed about 4% to 6% of pre-tax income on gasoline, which probably means about 7% to 10% of after tax income. After you factor in mortgage payments, insurance copayments and other fixed expenses, I'm guessing that a lot of families give their local gas station about a fifth of their monthly cash in hand. Given that in the short run consumers are stuck with the car, workplace and home that they have, short run price elasticity of gasoline is famously low, or around -0.25 (for non-economists: that means a 10% increase in gas prices reduces consumption by only 2.5%). As the graph above shows, between 2002 and 2008, increases in the price of gasoline ate over  $1,500 from the budget of the average US family. Gasoline price volatility is thus a major source of risk to the finances of US families. It is therefore surprising that a prudent consumer in the US (or in any other country I'm aware of) has essentially no ability to protect himself from the...