Looking beyond time preference: Testing potential causes of low willingness to pay for fuel economy improvements

Féidhlim P. McGowan, Eleanor Denny and Pete Lunn

Resource and Energy Economics, 2023, vol. 75, issue C

Abstract: Time preferences are considered a leading cause of the energy efficiency gap. We test two cognition-based mechanisms (concentration bias and underestimation bias) which are distinct from time preferences but can produce identical behaviour when costs are paid upfront and benefits are spread over time. We use an experiment that measures willingness-to-pay for an improvement in fuel economy to test the explanatory power of these mechanisms. The sample is large, nationally representative and comprised only of car buyers (n = 2368). The experiment varies between-subjects (i) the payment schedule for the fuel economy improvement, and (ii) the temporal framing of its monetary benefit. We combine the payment schedules and the benefit frames so that the pattern of results predicted by time preferences differs from the pattern predicted by cognitive mechanisms. Results support the preregistered hypotheses: willingness-to-pay increases as the payment schedule becomes more dispersed across time and decreases when the benefit is presented as more disaggregated (i.e. a monthly saving instead of annual or multi-year saving). The findings are consistent with the predictions of the two cognitive mechanisms, which may explain part of the energy-efficiency gap currently attributed to pure time preference.

Keywords: Energy-efficiency gap; Experiment; Willingness-to-pay; Underestimation bias; Concentration bias; Discounting (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:75:y:2023:i:c:s0928765523000593

DOI: 10.1016/j.reseneeco.2023.101404

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