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Consumer Myopia in Vehicle Purchases: Evidence from a Natural Experiment

Kenneth Gillingham (), Sebastien Houde and Arthur Van Benthem

No 13736, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: A central question in the analysis of fuel-economy policy is whether consumers are myopic with regards to future fuel costs. We provide the first evidence on consumer valuation of fuel economy from a natural experiment. We examine the short-run equilibrium effects of an exogenous restatement of fuel-economy ratings that affected 1.6 million vehicles. Using the implied changes in willingness-to-pay, we find that consumers act myopically: consumers are indifferent between $1 in discounted fuel costs and 15-38 cents in the vehicle purchase price when discounting at 4%. This myopia persists under a wide range of assumptions.

Keywords: fuel economy; myopia; regulation; Undervaluation; Vehicles (search for similar items in EconPapers)
JEL-codes: D12 H25 L11 L62 L71 Q4 (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-reg
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Working Paper: Consumer Myopia in Vehicle Purchases: Evidence from a Natural Experiment (2019) Downloads
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