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Is There an Energy Paradox in Fuel Economy? A Note on the Role of Consumer Heterogeneity and Sorting Bias

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  • Bento, Antonio M.
  • Li, Shanjun

    (Resources for the Future)

  • Roth, Kevin

Abstract

Previous literature finds that consumers tend to undervalue discounted future energy costs in their purchase decisions for energy-using durables. We argue that this finding could result from ignoring consumer heterogeneity in empirical analyses as opposed to true undervaluation. In the context of automobile demand, we show that, if not accounted for, consumer heterogeneity could lead to sorting, which in turn biases toward zero the estimate of marginal willingness to pay for discounted future fuel costs.

Suggested Citation

  • Bento, Antonio M. & Li, Shanjun & Roth, Kevin, 2010. "Is There an Energy Paradox in Fuel Economy? A Note on the Role of Consumer Heterogeneity and Sorting Bias," RFF Working Paper Series dp-10-56, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-10-56
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    References listed on IDEAS

    as
    1. Steven Berry & Samuel Kortum & Ariel Pakes, 1996. "Environmental Change and Hedonic Cost Functions for Automobiles," NBER Working Papers 5746, National Bureau of Economic Research, Inc.
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    5. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521747387, January.
    6. Helfand, Gloria & Wolverton, Ann, 2011. "Evaluating the Consumer Response to Fuel Economy: A Review of the Literature," International Review of Environmental and Resource Economics, now publishers, vol. 5(2), pages 103-146, May.
    7. Jerry A. Hausman, 1979. "Individual Discount Rates and the Purchase and Utilization of Energy-Using Durables," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 33-54, Spring.
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    More about this item

    Keywords

    energy paradox; fuel economy; consumer heterogeneity;
    All these keywords.

    JEL classification:

    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General

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