How Much Do Consumers Value Fuel Cost Savings? Evidence from Passenger Vehicle Leasing

Kevin Ankney and Benjamin Leard
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Benjamin Leard: Resources for the Future

No 21-27, RFF Working Paper Series from Resources for the Future

Abstract: Vehicle leasing involves a consumer renting a car for about three years. Given the typical lease length, we show that estimating valuation of leased vehicle fuel cost savings is fundamentally different from estimating valuation of purchased vehicle fuel cost savings. We find that new vehicle lessees and buyers undervalue lifetime fuel cost savings. But because leasing periods last around three years, new vehicle lessees fully value lease-specific fuel cost savings. Our estimates also imply that leasing companies set residual values, defined as a vehicle’s post-lease expected value, with the expectation that used vehicle buyers undervalue post-lease fuel cost savings.

Date: 2021-08-25
New Economics Papers: this item is included in nep-ene, nep-tre and nep-ure
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