Heterogeneous (Mis)Perceptions of Energy Costs: Implications for Measurement and Policy Design

Sébastien Houde and Erica Myers

Journal of Political Economy Microeconomics, 2026, vol. 4, issue 3, 906 - 955

Abstract: Quantifying heterogeneity in consumers’ misperceptions of product costs is crucial for policy design. We illustrate this in the context of energy-using durables, where a long-standing debate continues on whether taxes or standards are superior for regulating externalities. We derive formulas to quantify welfare effects for each instrument, accounting for misperceptions. Standards, such as minimum efficiency standards, which reduce the variance of the misperceived attribute, decrease allocative inefficiencies. In the US appliance market, minimum efficiency standards dominate taxes across scenarios, and correctly characterizing misperception heterogeneity is less important for setting optimal standards than for taxes.

Date: 2026
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Related works:
Working Paper: Heterogeneous (Mis-) Perceptions of Energy Costs: Implications for Measurement and Policy Design (2019)
Working Paper: Heterogeneous (Mis-) Perceptions of Energy Costs: Implications for Measurement and Policy Design (2019)
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