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Consumer Myopia in Vehicle Purchases: Evidence from a Natural Experiment

Author

Listed:
  • Kenneth Gillingham

    (Yale University, United States)

  • Sebastien Houde

    (ETH Zurich, Switzerland)

  • Arthur A. van Benthem

    (University of Pennsylvania, United States)

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.

Suggested Citation

  • Kenneth Gillingham & Sebastien Houde & Arthur A. van Benthem, 2019. "Consumer Myopia in Vehicle Purchases: Evidence from a Natural Experiment," CER-ETH Economics working paper series 19/321, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:19-321
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    References listed on IDEAS

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    More about this item

    Keywords

    fuel economy; vehicles; myopia; undervaluation; regulation;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • 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
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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