Simple Economics of Electric Vehicle Adoption

Increasing energy prices have led to a renewed interest in development of electric vehicles. At the same time, many customers may view an electric vehicle as an inferior alternative to the gasoline-powered car, due to limited range, length of time required to recharge the car, and limited availability of the related infrastructure. Further, commercially available and well-tested hybrid vehicle technology provides substantial fuel economy without requiring additional infrastructure investment; moreover, hybrid cars do not suffer from the range issue. This paper offers a first formal model of adoption of electric vehicles. We show that, depending on the values of the model's parameters, a situation can arise where some of the commuters purchase an electric vehicle as their second car, in addition to purchasing a regular gasoline-powered car. At the same time, improvements in fuel economy similar to development of a hybrid vehicle technology can lead to wide-spread adoption of a hybrid vehicle as household's only car. This paper will provide a framework model to analyze the question of electric vehicle adoption, which will be expanded in future research.