The impact of company cars on fuel choice and car characteristics

Abstract

We assess the extent to which employees receiving a company car choose a more environmentally friendly car compared to the scenario in which these individuals purchased a private car. We use micro register data covering Swedes and their car possession. To control for preferences for cars, we employ a combination of exact matching and Mahalanobis distance matching on socio-demographic variables, prior car characteristics, and prior company car possession. We find that the company cars are more likely to be an alternative fuelled vehicle but tend to be larger, heavier, and more powerful than private cars. New company cars consume 0.12 litres less fossil fuel per kilometre compared to new private cars. The welfare losses arising from the price distortion of company cars, increasing consumption of cars, outweigh the welfare gains arising from reduced carbon emissions and fuel costs. This results in an estimated welfare loss of €1122 per company car.