Consumers' willingness to pay for green cars: a discrete choice analysis in Italy

In September 2015, the Volkswagen Group was involved in a massive scandal regarding vehicles' emissions of substances harmful to the environment. This scandal, known as Dieselgate, caused a commotion in the automotive sector and raised the question of whether or not there exists consumer demand for cleaner cars. This paper aims to investigate consumers' willingness to pay a premium price for lower CO2 emitting cars. To do so, it adopts a discrete choice methodological approach and an exploratory survey involving 278 potential Italian car buyers. The results provide strong support for the primary hypothesis of the research that consumers are willing to pay more for cleaner vehicles, as expressed by a positive marginal willingness to pay for lower emissions. Potential car buyers indeed appear willing to pay a price premium of about euro 2100 for a 20% CO2 reduction per kilometre from the current standard level that car industry has to comply with. In particular, we estimate a willingness to pay approximately euro 88 for 1-g of CO2 reduction per kilometre (with a 95% confidence interval ranging between euro 54 and euro 122).