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

Sébastien Houde and Erica Myers

No 25722, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Quantifying heterogeneity in consumers’ misperceptions of product costs is crucial for policy design. We illustrate this point in the context of energy-using durables, where a long-standing policy debate continues on whether taxes or standards are superior for regulating externalities. We derive formulae to quantify welfare effects for each instrument, accounting for misperceptions. Standards have a notable advantage over taxes. They reduce the variance of the misperceived attribute in the choice set, which reduces allocative inefficiencies. In the U.S. appliance market, standards dominate taxes across scenarios, and correctly characterizing misperception heterogeneity is less important for setting optimal standards than for taxes.

JEL-codes: D12 D83 L15 Q41 Q50 (search for similar items in EconPapers)
Date: 2019-04
New Economics Papers: this item is included in nep-ene and nep-reg
Note: EEE IO PE
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Citations: View citations in EconPapers (15)

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