A Nested Logit Model of Vehicle Fuel Efficiency and Make-Model Choice

Using data from a 1989 household survey of new vehicle buyers, this paper develops and estimates a nested logit model of new vehicle demands where the make-models in the lower nest are partitioned by their fuel efficiencies in the upper nest. In comparison with the more restrictive multinomial logit model, the results support a nested structure of vehicle choice. Among the findings, improvements in vehicle size, safety and quality increase a make-model's demand. Females, lower income households, younger consumers, non-white purchasers, and buyers in more densely populated areas exhibit higher demands for more fuel efficient vehicles. The results also indicate that vehicle demands have an approximate unitary elasticity with respect to capital cost and are elastic with respect to operating costs