Working Paper: NBER ID: w21441
Authors: James M. Sallee; Sarah West; Wei Fan
Abstract: Debate about the appropriate design of energy policy hinges critically on whether consumers might undervalue energy efficiency, due to myopia or some other manifestation of limited rationality. We contribute to this debate by measuring consumers' willingness to pay for fuel economy using a novel identification strategy and high quality microdata from wholesale used car auctions. We leverage differences in future fuel costs across otherwise identical vehicles that have different current mileage, and therefore different remaining lifetimes. By seeing how price differences across high and low mileage vehicles of different fuel economies change in response to shocks to the price of gasoline, we estimate the relationship between vehicle prices and future fuel costs. Our data suggest that used automobile prices move one for one with changes in present discounted future fuel costs, which implies that consumers fully value fuel economy.
Keywords: fuel economy; used cars; consumer behavior; energy efficiency
JEL Codes: H23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| High mileage vehicles (L92) | Price responsiveness to fuel cost shocks (L90) |
| Used automobile prices (R48) | Future fuel costs (Q47) |
| Future fuel costs (Q47) | Consumer willingness to pay for the vehicle (R48) |