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Heterogeneous (Mis)Perceptions of Energy Costs: Implications for Measurement and Policy Design

Author

Listed:
  • Sébastien Houde
  • Erica Myers

Abstract

Quantifying heterogeneity in consumers’ misperceptions of product costs is crucial for policy design. We illustrate this in the context of energy-using durables, where a long-standing debate continues on whether taxes or standards are superior for regulating externalities. We derive formulas to quantify welfare effects for each instrument, accounting for misperceptions. Standards, such as minimum efficiency standards, which reduce the variance of the misperceived attribute, decrease allocative inefficiencies. In the US appliance market, minimum efficiency standards dominate taxes across scenarios, and correctly characterizing misperception heterogeneity is less important for setting optimal standards than for taxes.

Suggested Citation

  • Sébastien Houde & Erica Myers, 2026. "Heterogeneous (Mis)Perceptions of Energy Costs: Implications for Measurement and Policy Design," Journal of Political Economy Microeconomics, University of Chicago Press, vol. 4(3), pages 906-955.
    • Handle: RePEc:ucp:jpemic:doi:10.1086/737244
    DOI: 10.1086/737244
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    1. is not listed on IDEAS
    2. Heiss, Florian & Hetzenecker, Stephan & Osterhaus, Maximilian, 2019. "Nonparametric estimation of the random coefficients model: An elastic net approach," DICE Discussion Papers 326, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    3. Zhang, Xiao-Bing & Fei, Yinxin & Duan, Hongbo & Soytas, Ugur & Crifo, Patricia & Sterner, Thomas, 2025. "Implicit discount rates and energy efficiency gap in air conditioning: Evidence from the Chinese market," Resource and Energy Economics, Elsevier, vol. 82(C).
    4. Lu, Tingmingke, 2023. "Response of new car buyers to alternative energy policies: The role of vehicle use heterogeneity," Economic Modelling, Elsevier, vol. 120(C).
    5. Myers, Erica & Souza, Mateus, 2020. "Social comparison nudges without monetary incentives: Evidence from home energy reports," Journal of Environmental Economics and Management, Elsevier, vol. 101(C).
    6. Kenneth T. Gillingham & Sébastien Houde & Arthur A. van Benthem, 2021. "Consumer Myopia in Vehicle Purchases: Evidence from a Natural Experiment," American Economic Journal: Economic Policy, American Economic Association, vol. 13(3), pages 207-238, August.
    7. Heiss, Florian & Hetzenecker, Stephan & Osterhaus, Maximilian, 2022. "Nonparametric estimation of the random coefficients model: An elastic net approach," Journal of Econometrics, Elsevier, vol. 229(2), pages 299-321.
    8. Antweiler, Werner, 2024. "Carbon pricing and consumer myopia," Ruhr Economic Papers 1140, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    9. Tingmingke Lu, 2025. "Maximum Hallucination Standards for Domain-Specific Large Language Models," Papers 2503.05481, arXiv.org.
    10. Sahari, Anna, 2021. "Household heterogeneity in valuation of heating energy costs," Working Papers 141, VATT Institute for Economic Research.
    11. Andrea La Nauze & Erica Myers, 2023. "Do Consumers Acquire Information Optimally? Experimental Evidence from Energy Efficiency," NBER Working Papers 31742, National Bureau of Economic Research, Inc.
    12. Bishop, Kelly C. & Kiribrahim-Sarikaya, Ozgen, 2024. "Energy-efficient investments in housing," Regional Science and Urban Economics, Elsevier, vol. 107(C).
    13. Heiss, Florian & Hetzenecker, Stephan & Osterhaus, Maximilian, 2019. "Nonparametric estimation of the random coefficients model: An elastic net approach," Ruhr Economic Papers 824, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    14. Gosnell, Greer & McCoy, Daire, 2023. "Market failures and willingness to accept smart meters: Experimental evidence from the UK," Journal of Environmental Economics and Management, Elsevier, vol. 118(C).
    15. Hannah Villeneuve & Ahmed Abdeen & Maya Papineau & Sharane Simon & Cynthia Cruickshank & William O'Brien, 2020. "New insights on the energy impacts of telework," Carleton Economic Papers 20-20, Carleton University, Department of Economics.

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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