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Consumer Myopia in Vehicle Purchases: Evidence from a Natural Experiment

Kenneth Gillingham (), Sebastien Houde () and Arthur A. van Benthem ()
Additional contact information
Kenneth Gillingham: Yale University, United States
Sebastien Houde: ETH Zurich, Switzerland
Arthur A. van Benthem: University of Pennsylvania, United States

No 19/321, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

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; vehicles; myopia; undervaluation; regulation (search for similar items in EconPapers)
JEL-codes: D12 H25 L11 L62 L71 Q4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dcm, nep-ene, nep-res and nep-tre
Date: 2019-05
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Persistent link: https://EconPapers.repec.org/RePEc:eth:wpswif:19-321

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