Types of Effects
The full rebound effect can be distinguished into three different economic reactions:
- Direct rebound effect: Increased fuel efficiency lowers the cost of consumption, and hence increases the consumption of that good because of the substitution effect.
- Indirect rebound effect: Through the income effect, decreased cost of the good enables increased household consumption of other goods and services, increasing the consumption of the resource embodied in those goods and services.
- Economy wide effects: New technology creates new production possibilities and increases economic growth.
In the example of improved vehicle fuel efficiency, the direct effect would be the increased fuel use from more driving as driving becomes cheaper. The indirect effect would incorporate the increased consumption of other goods enabled by household cost savings from increased fuel efficiency. Since consumption of other goods increase, the embodied fuel used in the production of those goods would increase as well. Finally, the economy wide effect would include the long term effect of the increase in vehicle fuel efficiency on production and consumption possibilities throughout the economy, including any effects on economic growth rates.
Read more about this topic: Rebound Effect (conservation)
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