Abstract:In the past 20 years, the acceleration performance of light-duty vehicles in the United States has improved substantially while vehicles have gotten larger and heavier. Over the same period, fuel economy, measured as miles per gallon, has not improved. These data suggest that technological innovation in vehicles is not lagging but is not being used to improve vehicle fuel economy. This paper quantifies vehicle efficiency improvements in U.S. light-duty vehicles since 1975. The rapid rise in fuel economy in the late 1970s was due to a mix of efficiency improvements and downgrading of utility in the form of reduced size, power, and elimination of accessories and amenities (such as air conditioning). In contrast, since the mid-1980s, fuel economy has remained constant while the benefits of technological innovation were used to satisfy private desires (more power, size, and amenities), instead of the public interest (reduced greenhouse gas emissions and oil imports). An important policy question is how and to what extent future efficiency innovations might be directed to the public interest.