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American Economic Review: Vol. 103 No. 1 (February 2013)

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Are Consumers Myopic? Evidence from New and Used Car Purchases

Article Citation

Busse, Meghan R., Christopher R. Knittel, and Florian Zettelmeyer. 2013. "Are Consumers Myopic? Evidence from New and Used Car Purchases." American Economic Review, 103(1): 220-56.

DOI: 10.1257/aer.103.1.220

Abstract

We investigate whether car buyers are myopic about future fuel costs. We estimate the effect of gasoline prices on short-run equilibrium prices of cars of different fuel economies. We then compare the implied changes in willingness-to-pay to the associated changes in expected future gasoline costs for cars of different fuel economies in order to calculate implicit discount rates. Using different assumptions about annual mileage, survival rates, and demand elasticities, we calculate a range of implicit discount rates similar to the range of interest rates paid by car buyers who borrow. We interpret this as showing little evidence of consumer myopia. (JEL D12, H25, L11, L62, L71, L81)

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Authors

Busse, Meghan R. (Northwestern U)
Knittel, Christopher R. (MIT)
Zettelmeyer, Florian (Northwestern U)

JEL Classifications

D12: Consumer Economics: Empirical Analysis
H25: Business Taxes and Subsidies including sales and value-added (VAT)
L11: Production, Pricing, and Market Structure; Size Distribution of Firms
L62: Automobiles; Other Transportation Equipment
L71: Mining, Extraction, and Refining: Hydrocarbon Fuels
L81: Retail and Wholesale Trade; e-Commerce


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