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Are Consumers Myopic? Evidence from New and Used Car Purchases

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Author Info

  • Meghan R. Busse
  • Christopher R. Knittel
  • Florian Zettelmeyer

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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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.103.1.220
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 103 (2013)
Issue (Month): 1 (February)
Pages: 220-56

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Handle: RePEc:aea:aecrev:v:103:y:2013:i:1:p:220-56

Note: DOI: 10.1257/aer.103.1.220
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Cited by:
  1. Linn, Joshua, 2014. "Explaining the Adoption of Diesel Fuel Passenger Cars in Europe," Discussion Papers dp-14-08, Resources For the Future.
  2. Lint Barrage & Eric Chyn & Justine Hastings, 2014. "Advertising, Reputation, and Environmental Stewardship: Evidence from the BP Oil Spill," NBER Working Papers 19838, National Bureau of Economic Research, Inc.
  3. Mark R. Jacobsen & Arthur A. van Benthem, 2013. "Vehicle Scrappage and Gasoline Policy," NBER Working Papers 19055, National Bureau of Economic Research, Inc.
  4. Antonio M. Bento & Jonathan E. Hughes & Daniel T. Kaffine, 2012. "Carpooling and Driver Responses to Fuel Price Changes: Evidence from Traffic Flows in Los Angeles," Working Papers 2012-06, Colorado School of Mines, Division of Economics and Business.
  5. Li, Shanjun & Linn, Joshua & Muehlegger, Erich, 2012. "Gasoline Taxes and Consumer Behavior," Working Paper Series rwp12-006, Harvard University, John F. Kennedy School of Government.
  6. Natalia Fabra & Mar Reguant, 2013. "Pass-through of Emissions Costs in Electricity Markets," NBER Working Papers 19613, National Bureau of Economic Research, Inc.
  7. Linn, Joshua, 2013. "The Rebound Effect for Passenger Vehicles," Discussion Papers dp-13-19-rev, Resources For the Future.
  8. Khanna, Shefali & Linn, Joshua, 2013. "Do Market Shares or Technology Explain Rising New Vehicle Fuel Economy?," Discussion Papers dp-13-29, Resources For the Future.
  9. Eliasson , Jonas & Proost, Stef, 2014. "Is sustainable transport policy sustainable?," Working papers in Transport Economics 2014:2, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
  10. S├ębastien Houde, 2014. "How Consumers Respond to Environmental Certification and the Value of Energy Information," NBER Working Papers 20019, National Bureau of Economic Research, Inc.
  11. James M. Sallee, 2013. "Rational Inattention and Energy Efficiency," NBER Working Papers 19545, National Bureau of Economic Research, Inc.
  12. Meghan R. Busse & Jorge M. Silva-Risso, 2010. ""One Discriminatory Rent" or "Double Jeopardy": Multicomponent Negotiation for New Car Purchases," American Economic Review, American Economic Association, vol. 100(2), pages 470-74, May.
  13. Klier, Thomas & Linn, Joshua, 2013. "Technological Change, Vehicle Characteristics, and the Opportunity Costs of Fuel Economy Standards," Discussion Papers dp-13-40, Resources For the Future.

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