Dixie Cups, CAFE Standards, and Numeracy

Using a Dixie cup twice proves to be a more efficient choice than thrice.

At my cottage nestled in Canada, I enjoy the luxury of running water from a lake pump, though I must be cautious about its safety. Within my “bath hut,” I keep a bottle of clean water, from which I pour a small amount into a Dixie cup each time I brush my teeth. After brushing, I rinse my toothbrush in the Dixie cup and dispose of the water.

Initially, I tossed the cup right after use, but during a recent visit from a friend, I observed him reusing his cup. It sparked a change in my habits, and I followed suit.

However, I quickly discovered that after its second use, the cup lacked the sturdiness of its first life. Thus, I reverted to discarding it after two uses.

This led my analytical brain to a realization: the benefits of reusing a cup a second time far outweigh those gained from a third use. Let’s break it down.

Imagine a scenario where I stay at my cottage for 18 days—roughly accurate. If I use a fresh Dixie cup each time, I will need 36 cups (one for morning and one for evening). By reusing each cup twice, I would only need 18, saving me 18 cups. If I attempted a third use, the total drops to 12 cups, which means I save an additional six.

Thus, the resource savings from a second use are triple those from a third.

Now, what about a hypothetical fourth use? That would drop my total to nine cups, yielding only a saving of three. The trend is clear.

What’s the takeaway?

There are essentially two key points to consider.

First, there’s the concept of marginal utility. The incremental benefit of transitioning from one use to two is significantly greater than that of moving from two to three uses.

The second point recalls my tenure as a senior economist for energy during President Reagan’s Council of Economic Advisers, where I tackled the Corporate Average Fuel Economy (CAFE) mandate. Established as part of the Energy Policy and Conservation Act signed by President Ford in 1975, this mandate emerged from the fallout of Nixon’s and Ford’s gasoline price controls. Faced with artificially low gasoline prices, consumers were not switching to fuel-efficient vehicles as rapidly as some policymakers expected.

Instead of addressing the price controls directly, Congress and the President opted for a regulatory approach, demanding that auto manufacturers achieve specified average fuel economy levels, which were set to increase over time.

During my time at the CEA, both my colleagues Martin Feldstein and William Niskanen were in favor of repealing CAFE, but that was a non-starter. Instead, we advocated against further increases and for relaxing existing standards.

Our efforts, however, fell short.

Yet, there was an argument I failed to emphasize, which deserves attention: the fuel savings achieved by raising the mandate from, say, 20 mpg to 22 mpg surpass those gained from increasing it from 22 to 24 mpg. To illustrate, consider that if 100 million cars in the U.S. average 10,000 miles each, they cover a staggering total of 1 trillion miles. At 20 mpg, they consume 50 billion gallons of gasoline. Elevating the mandate to 22 mpg reduces consumption to 45.5 billion gallons—a saving of 4.5 billion gallons. Conversely, increasing from 22 to 24 mpg only saves an additional 3.8 billion gallons, and from 24 to 26 mpg, the savings drop further to 3.2 billion gallons. Just like with the Dixie cups, each successive increase in required mpg yields diminishing returns.

I should note that I am assuming away behavioral effects. The so-called rebound effect posits that higher fuel economy standards lower the cost of driving an additional mile, potentially leading to increased driving. Yet, this assumption does not undermine my argument since the rebound effect also diminishes with subsequent mpg increases.

So, here’s a glimpse into how a microeconomist, even while on holiday in Canada, grapples with regulatory implications.