Are Home Buyers Inattentive? Evidence from Capitalization of Energy Costs

Erica Myers

American Economic Journal: Economic Policy, 2019, vol. 11, issue 2, 165-88

Abstract: This paper explores whether home buyers are attentive to energy costs. The cost-effectiveness of market-based pollution policies crucially depends on whether consumers are attentive to energy costs when purchasing energy-using durables. I exploit energy-cost variation from fuel-price changes in Massachusetts where there is significant overlap in the geographic and age distributions of oil-heated and gas-heated homes. The results strongly reject that home buyers are unresponsive to energy costs under a wide range of consumption and discount-rate assumptions. Furthermore, my preferred specification is consistent with full capitalization of fuel expenditures at discount rates similar to mortgage interest rates.

JEL-codes: D14 L71 Q41 Q53 Q58 R31 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/pol.20170481
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Citations: View citations in EconPapers (43)

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