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Consumer Myopia in Vehicle Purchases: Evidence from a Natural Experiment

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  • Kenneth Gillingham
  • Sébastien Houde
  • Arthur van Benthem

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 consumer valuation of fuel economy from a natural experiment. We examine the short-run equilibrium effects of an exogenous 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 in discounted fuel costs and 15-38 cents in the vehicle purchase price when discounting at 4%. This myopia persists under a wide range of assumptions.

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  • Kenneth Gillingham & Sébastien Houde & Arthur van Benthem, 2019. "Consumer Myopia in Vehicle Purchases: Evidence from a Natural Experiment," NBER Working Papers 25845, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:25845
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    Cited by:

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    2. Bushnell, James PhD & Muehlegger, Erich PhD & Rapson, David PhD, 2021. "Do Electricity Prices Affect Electric Vehicle Adoption?," Institute of Transportation Studies, Working Paper Series qt7p19k8c6, Institute of Transportation Studies, UC Davis.
    3. Zunian Luo, 2022. "Cap or No Cap? What Can Governments Do to Promote EV Sales?," Papers 2212.08137, arXiv.org.
    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. Littlejohn, Christina & Proost, Stef, 2022. "What role for electric vehicles in the decarbonization of the car transport sector in Europe?," Economics of Transportation, Elsevier, vol. 32(C).
    6. Patrick Bigler & Doina Maria Radulescu, 2022. "Environmental, Redistributive and Revenue Effects of Policies Promoting Fuel Efficient and Electric Vehicles," CESifo Working Paper Series 9645, CESifo.
    7. Alberini, Anna & Di Cosmo, Valeria & Bigano, Andrea, 2019. "How are fuel efficient cars priced? Evidence from eight EU countries," Energy Policy, Elsevier, vol. 134(C).
    8. Linn, Joshua, 2023. "Emissions Standards and Electric Vehicle Targets for Passenger Vehicles," RFF Working Paper Series 23-05, Resources for the Future.
    9. Ranjit R. Desai & Eric Hittinger & Eric Williams, 2022. "Interaction of Consumer Heterogeneity and Technological Progress in the US Electric Vehicle Market," Energies, MDPI, vol. 15(13), pages 1-25, June.
    10. Rik L. Rozendaal & Herman R. J. Vollebergh, 2021. "Policy-Induced Innovation in Clean Technologies: Evidence from the Car Market," CESifo Working Paper Series 9422, CESifo.
    11. Kenneth T. Gillingham, 2022. "Designing Fuel-Economy Standards in Light of Electric Vehicles," Environmental and Energy Policy and the Economy, University of Chicago Press, vol. 3(1), pages 111-154.
    12. Alberini, Anna & Horvath, Marco, 2021. "All car taxes are not created equal: Evidence from Germany," Energy Economics, Elsevier, vol. 100(C).
    13. Boogen, Nina & Daminato, Claudio & Filippini, Massimo & Obrist, Adrian, 2022. "Can information about energy costs affect consumers’ choices? Evidence from a field experiment☆," Journal of Economic Behavior & Organization, Elsevier, vol. 196(C), pages 568-588.
    14. Ali, Saleem H., 2020. "Environmental urgency versus the allure of RCT empiricism," World Development, Elsevier, vol. 127(C).
    15. Arakawa, Kiyoshi, 2022. "Assessing consumer valuations of future costs versus purchase prices in Japan's auto market," Economics of Transportation, Elsevier, vol. 30(C).
    16. Houde, Sébastien & Myers, Erica, 2021. "Are consumers attentive to local energy costs? Evidence from the appliance market," Journal of Public Economics, Elsevier, vol. 201(C).
    17. Ovaere, Marten & Proost, Stef, 2022. "Cost-effective reduction of fossil energy use in the European transport sector: An assessment of the Fit for 55 Package," Energy Policy, Elsevier, vol. 168(C).
    18. Luo, Zunian, 2021. "Cap or no cap? What can governments do to promote EV sales?," MPRA Paper 113566, University Library of Munich, Germany.
    19. Ottmar Edenhofer & Max Franks & Matthias Kalkuhl & Artur Runge-Metzger, 2023. "On the Governance of Carbon Dioxide Removal – A Public Economics Perspective," CESifo Working Paper Series 10370, CESifo.
    20. Sahari, Anna, 2021. "Household heterogeneity in valuation of heating energy costs," Working Papers 141, VATT Institute for Economic Research.
    21. Leard, Benjamin & Linn, Joshua & Springel, Katalin, 2020. "Have US Fuel Economy and Greenhouse Gas Emissions Standards Improved Social Welfare?," RFF Working Paper Series 20-06, Resources for the Future.
    22. Leard, Benjamin & Linn, Joshua & Springel, Katalin, 2023. "Vehicle Attribute Tradeoffs and the Distributional Effects of US Fuel Economy and Greenhouse Gas Emissions Standards," RFF Working Paper Series 23-04, Resources for the Future.

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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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