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Salience and Policy Instruments: Evidence from the Auto Market

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  • Cristian Huse
  • Nikita Koptyug

Abstract

We take advantage of a unique institutional setting that allows consumers to separately value fuel and vehicle (or road) taxes. We estimate a structural model of vehicle choice using consumer-level revealed preference and find that consumers undervalue both policy instruments, but undervaluation of the latter is substantially more severe. We examine potential explanations and document that behavioral explanations, in particular salience of the policy instruments, lie at the root of our findings; for a number of the salient versions of vehicle tax and fuel costs we then construct, we cannot reject the null hypothesis of their correct valuation. This also holds when using different measures of news and online search activity as proxies for salience. The results call for complementary policy instruments to restore market efficiency and for measures to make policy instruments more salient to consumers.

Suggested Citation

  • Cristian Huse & Nikita Koptyug, 2022. "Salience and Policy Instruments: Evidence from the Auto Market," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 9(2), pages 345-382.
    • Handle: RePEc:ucp:jaerec:doi:10.1086/716878
    DOI: 10.1086/716878
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    Cited by:

    1. Pier Basaglia & Sophie Behr & Moritz A. Drupp, 2023. "De-Fueling Externalities: How Tax Salience and Fuel Substitution Mediate Climate and Health Benefits," Discussion Papers of DIW Berlin 2041, DIW Berlin, German Institute for Economic Research.
    2. Joelle Noailly; Laura Nowzohour; Matthias van den Heuvel, 2021. "Heard the News? Environmental Policy and Clean Investments," CIES Research Paper series 70-2021, Centre for International Environmental Studies, The Graduate Institute.
    3. Pier Basaglia & Sophie M. Behr & Moritz A. Drupp, 2023. "De-Fueling Externalities: Causal Effects of Fuel Taxation and Mediating Mechanisms for Reducing Climate and Pollution Costs," CESifo Working Paper Series 10508, CESifo.

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