Consumer Myopia in Vehicle Purchases: Evidence from a Natural Experiment
American Economic Journal: Economic Policy
vol. 13,
no. 3, August 2021
(pp. 207-38)
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 the consumer valuation of fuel economy from a natural experiment that provides exogenous variation in fuel economy ratings. We examine the short-run equilibrium effects of a 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 $1.00 in discounted fuel costs and $0.16–0.39 in the purchase price when discounting at 4 percent. This undervaluation persists under a wide range of assumptions.Citation
Gillingham, Kenneth T., Sébastien Houde, and Arthur A. van Benthem. 2021. "Consumer Myopia in Vehicle Purchases: Evidence from a Natural Experiment." American Economic Journal: Economic Policy, 13 (3): 207-38. DOI: 10.1257/pol.20200322Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms
- L62 Automobiles; Other Transportation Equipment; Related Parts and Equipment
- L71 Mining, Extraction, and Refining: Hydrocarbon Fuels
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