Working Paper: NBER ID: w25845
Authors: Kenneth Gillingham; Sébastien Houde; Arthur van Benthem
Abstract: A central question in the analysis of fuel-economy policy is whether consumers are myopic with regards to future fuel costs. We provide the first evidence on consumer valuation of fuel economy from a natural experiment. We examine the short-run equilibrium effects of an exogenous restatement of fuel-economy ratings that affected 1.6 million vehicles. Using the implied changes in willingness-to-pay, we find that consumers act myopically: consumers are indifferent between $1 in discounted fuel costs and 15-38 cents in the vehicle purchase price when discounting at 4%. This myopia persists under a wide range of assumptions.
Keywords: consumer behavior; fuel economy; natural experiment; myopia; vehicle purchases
JEL Codes: D12; L62; Q4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| consumer myopia (D19) | undervaluation of fuel economy (Q51) |
| restatement of fuel economy ratings (R48) | consumer valuation of fuel economy (Q51) |
| restatement of fuel economy ratings (R48) | transaction prices of affected vehicle models (P22) |
| transaction prices of affected vehicle models (P22) | equilibrium prices of affected models (D41) |