IDEAS home Printed from https://ideas.repec.org/a/eee/jeeman/v92y2018icp194-221.html
   My bibliography  Save this article

Flexible fuel vehicles, less flexible minded consumers: Price information experiments at the pump

Author

Listed:
  • Salvo, Alberto

Abstract

Among Brazil's gasoline-ethanol vehicle users, it is common to observe the purchase of the fuel that yields the less miles per dollar of spending. In a large-scale set of experiments with 10,400 subjects, I inform energy consumers at the pump of the effective price difference across fuels. The largest treatment effect finds one-tenth of consumers, who absent the intervention would have chosen expensive gasoline, instead choosing cheaper ethanol. This shift is small compared with the higher likelihood that the cheaper fuel is chosen among college-educated relative to less schooled subjects. I estimate the consumer welfare gain from providing accessible price comparisons to be equivalent to a 1–3% general reduction in fuel prices, depending on the relative price point.

Suggested Citation

  • Salvo, Alberto, 2018. "Flexible fuel vehicles, less flexible minded consumers: Price information experiments at the pump," Journal of Environmental Economics and Management, Elsevier, vol. 92(C), pages 194-221.
  • Handle: RePEc:eee:jeeman:v:92:y:2018:i:c:p:194-221
    DOI: 10.1016/j.jeem.2018.08.016
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0095069617307611
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.jeem.2018.08.016?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. repec:mpr:mprres:7375 is not listed on IDEAS
    2. Kenneth Gillingham & Karen Palmer, 2014. "Bridging the Energy Efficiency Gap: Policy Insights from Economic Theory and Empirical Evidence," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 8(1), pages 18-38, January.
    3. Anderson, Soren T., 2012. "The demand for ethanol as a gasoline substitute," Journal of Environmental Economics and Management, Elsevier, vol. 63(2), pages 151-168.
    4. Bart J. Bronnenberg & Jean-Pierre Dubé & Matthew Gentzkow & Jesse M. Shapiro, 2015. "Do Pharmacists Buy Bayer? Informed Shoppers and the Brand Premium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(4), pages 1669-1726.
    5. Michael Dinerstein & Liran Einav & Jonathan Levin & Neel Sundaresan, 2018. "Consumer Price Search and Platform Design in Internet Commerce," American Economic Review, American Economic Association, vol. 108(7), pages 1820-1859, July.
    6. Soren T. Anderson & James M. Sallee, 2011. "Using Loopholes to Reveal the Marginal Cost of Regulation: The Case of Fuel-Economy Standards," American Economic Review, American Economic Association, vol. 101(4), pages 1375-1409, June.
    7. Jesse M. Shapiro, 2013. "Fungibility and Consumer Choice: Evidence from Commodity Price Shocks," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(4), pages 1449-1498.
    8. Meredith Fowlie & Michael Greenstone & Catherine Wolfram, 2015. "Are the Non-monetary Costs of Energy Efficiency Investments Large? Understanding Low Take-Up of a Free Energy Efficiency Program," American Economic Review, American Economic Association, vol. 105(5), pages 201-204, May.
    9. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and Taxation: Theory and Evidence," American Economic Review, American Economic Association, vol. 99(4), pages 1145-1177, September.
    10. James J. Choi & David Laibson & Brigitte C. Madrian, 2011. "$100 Bills on the Sidewalk: Suboptimal Investment in 401(k) Plans," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 748-763, August.
    11. Stephen P. Holland & Jonathan E. Hughes & Christopher R. Knittel, 2009. "Greenhouse Gas Reductions under Low Carbon Fuel Standards?," American Economic Journal: Economic Policy, American Economic Association, vol. 1(1), pages 106-146, February.
    12. Annamaria Lusardi & Olivia S. Mitchell, 2008. "Planning and Financial Literacy: How Do Women Fare?," American Economic Review, American Economic Association, vol. 98(2), pages 413-417, May.
    13. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2013. "Salience and Consumer Choice," Journal of Political Economy, University of Chicago Press, vol. 121(5), pages 803-843.
    14. Jeffrey R. Kling & Sendhil Mullainathan & Eldar Shafir & Lee C. Vermeulen & Marian V. Wrobel, 2012. "Comparison Friction: Experimental Evidence from Medicare Drug Plans," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(1), pages 199-235.
    15. Sofronis Clerides & Pascal Courty, 2017. "Sales, Quantity Surcharge, and Consumer Inattention," The Review of Economics and Statistics, MIT Press, vol. 99(2), pages 357-370, May.
    16. Holland, Stephen P & Knittel, Christopher R & Hughes, Jonathan E., 2008. "Greenhouse Gas Reductions under Low Carbon Fuel Standards?," Institute of Transportation Studies, Working Paper Series qt0177r7xp, Institute of Transportation Studies, UC Davis.
    17. Salvo, A & Geiger, F, 2014. "Reduction in Local Ozone Levels in Urban São Paulo Due to a Shift from Ethanol to Gasoline Use," MPRA Paper 57868, University Library of Munich, Germany, revised 18 Feb 2014.
    18. Stefano DellaVigna, 2009. "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 315-372, June.
    19. Salvo, Alberto & Huse, Cristian, 2013. "Build it, but will they come? Evidence from consumer choice between gasoline and sugarcane ethanol," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 251-279.
    20. Babur De Los Santos & Ali Hortacsu & Matthijs R. Wildenbeest, 2012. "Testing Models of Consumer Search Using Data on Web Browsing and Purchasing Behavior," American Economic Review, American Economic Association, vol. 102(6), pages 2955-2980, October.
    21. Katrina Jessoe & David Rapson, 2014. "Knowledge Is (Less) Power: Experimental Evidence from Residential Energy Use," American Economic Review, American Economic Association, vol. 104(4), pages 1417-1438, April.
    22. Tiago Pires, 2016. "Costly search and consideration sets in storable goods markets," Quantitative Marketing and Economics (QME), Springer, vol. 14(3), pages 157-193, September.
    23. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
    24. Jean-Francois Houde, 2012. "Spatial Differentiation and Vertical Mergers in Retail Markets for Gasoline," American Economic Review, American Economic Association, vol. 102(5), pages 2147-2182, August.
    25. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-741, September.
    26. Austan Goolsbee & Amil Petrin, 2004. "The Consumer Gains from Direct Broadcast Satellites and the Competition with Cable TV," Econometrica, Econometric Society, vol. 72(2), pages 351-381, March.
    27. David Dranove & Ginger Zhe Jin, 2010. "Quality Disclosure and Certification: Theory and Practice," Journal of Economic Literature, American Economic Association, vol. 48(4), pages 935-963, December.
    28. Ali Hortaçsu & Seyed Ali Madanizadeh & Steven L. Puller, 2017. "Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market," American Economic Journal: Economic Policy, American Economic Association, vol. 9(4), pages 192-226, November.
    29. Martin Gaynor & Carol Propper & Stephan Seiler, 2016. "Free to Choose? Reform, Choice, and Consideration Sets in the English National Health Service," American Economic Review, American Economic Association, vol. 106(11), pages 3521-3557, November.
    30. Benjamin R. Handel, 2013. "Adverse Selection and Inertia in Health Insurance Markets: When Nudging Hurts," American Economic Review, American Economic Association, vol. 103(7), pages 2643-2682, December.
    31. Holland, Stephen P. & Knittel, Christopher R & Hughes, Jonathan E., 2008. "Greenhouse Gas Reductions under Low Carbon Fuel Standards?," Institute of Transportation Studies, Working Paper Series qt9gh5b4rv, Institute of Transportation Studies, UC Davis.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Aloisio S. Nascimento Filho & Rafael G. O. dos Santos & João Gabriel A. Calmon & Peterson A. Lobato & Marcelo A. Moret & Thiago B. Murari & Hugo Saba, 2022. "Induction of a Consumption Pattern for Ethanol and Gasoline in Brazil," Sustainability, MDPI, vol. 14(15), pages 1-11, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ericson, Keith M. Marzilli & Starc, Amanda, 2016. "How product standardization affects choice: Evidence from the Massachusetts Health Insurance Exchange," Journal of Health Economics, Elsevier, vol. 50(C), pages 71-85.
    2. Salvo, Alberto & Huse, Cristian, 2013. "Build it, but will they come? Evidence from consumer choice between gasoline and sugarcane ethanol," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 251-279.
    3. Genakos, Christos & Roumanias, Costas & Valletti, Tommaso, 2023. "Is having an expert “friend” enough? An analysis of consumer switching behavior in mobile telephony," Journal of Economic Behavior & Organization, Elsevier, vol. 213(C), pages 359-372.
    4. Paul D. Adams & Stefan Hunt & Christopher Palmer & Redis Zaliauskas, 2019. "Testing the Effectiveness of Consumer Financial Disclosure: Experimental Evidence from Savings Accounts," NBER Working Papers 25718, National Bureau of Economic Research, Inc.
    5. Michael Grubb, 2015. "Failing to Choose the Best Price: Theory, Evidence, and Policy," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 303-340, November.
    6. Singhal, Puja & Pahle, Michael & Kalkuhl, Matthias & Levesque, Antoine & Sommer, Stephan & Berneiser, Jessica, 2022. "Beyond good faith: Why evidence-based policy is necessary to decarbonize buildings cost-effectively in Germany," Energy Policy, Elsevier, vol. 169(C).
    7. Adams, Paul & Hunt, Stefan & Palmer, Christopher & Zaliauskas, Redis, 2021. "Testing the effectiveness of consumer financial disclosure: Experimental evidence from savings accounts," Journal of Financial Economics, Elsevier, vol. 141(1), pages 122-147.
    8. Karsten Hansen & Kanishka Misra & Robert Evan Sanders, 2024. "Uninformed Choices in Perishables," Marketing Science, INFORMS, vol. 43(4), pages 751-777, July.
    9. Xavier Gabaix, 2017. "Behavioral Inattention," NBER Working Papers 24096, National Bureau of Economic Research, Inc.
    10. Yeh, Sonia & Burtraw, Dallas & Sterner, Thomas & Greene, David, 2021. "Tradable performance standards in the transportation sector," Energy Economics, Elsevier, vol. 102(C).
    11. Lang, Ghislaine & Lanz, Bruno, 2022. "Climate policy without a price signal: Evidence on the implicit carbon price of energy efficiency in buildings," Journal of Environmental Economics and Management, Elsevier, vol. 111(C).
    12. Gabriel E Lade & C -Y Cynthia Lin Lawell & Aaron Smith, 2018. "Policy Shocks and Market-Based Regulations: Evidence from the Renewable Fuel Standard," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 100(3), pages 707-731.
    13. Tatsuya Abe, 2022. "Welfare Effects of Fuel Tax and Feebate Policies in the Japanese New Car Market," ISER Discussion Paper 1183, Institute of Social and Economic Research, The University of Osaka.
    14. Tatsuya Abe, 2022. "Welfare Effects of Fuel Tax and Feebate Policies in the Japanese New Car Market," Working Papers e172, Tokyo Center for Economic Research.
    15. Jacobsen, Grant D. & Stewart, James I., 2022. "How do consumers respond to price complexity? Experimental evidence from the power sector," Journal of Environmental Economics and Management, Elsevier, vol. 116(C).
    16. Avi Goldfarb & Mo Xiao, 2024. "Transitory shocks, limited attention, and a firm’s decision to exit," Quantitative Marketing and Economics (QME), Springer, vol. 22(3), pages 223-255, September.
    17. Mazumder, Diya B., 2014. "Biofuel subsidies versus the gas tax: The carrot or the stick?," Energy Economics, Elsevier, vol. 44(C), pages 361-374.
    18. Anderson, Soren T. & Elzinga, Andrew, 2014. "A ban on one is a boon for the other: Strict gasoline content rules and implicit ethanol blending mandates," Journal of Environmental Economics and Management, Elsevier, vol. 67(3), pages 258-273.
    19. Karle, Heiko & Schumacher, Heiner & Vølund, Rune, 2023. "Consumer loss aversion and scale-dependent psychological switching costs," Games and Economic Behavior, Elsevier, vol. 138(C), pages 214-237.
    20. Scheitrum, Daniel, 2017. "Renewable Natural Gas as a Solution to Climate Goals: Response to California's Low Carbon Fuel Standard," MPRA Paper 77193, University Library of Munich, Germany.

    More about this item

    Keywords

    Product differentiation; Limited information; Limited attention; Price comparisons; Information disclosure; Gasoline; Alternative fuels; Biofuels; Flexible fuel vehicles; Discrete-choice models;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • M38 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Government Policy and Regulation
    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeeman:v:92:y:2018:i:c:p:194-221. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622870 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.