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Discussion Paper Details

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Title: Consumer Myopia in Vehicle Purchases: Evidence from a Natural Experiment

Author(s): Kenneth Gillingham, Sebastien Houde and Arthur Van Benthem

Publication Date: May 2019

Keyword(s): fuel economy, myopia, regulation, Undervaluation and Vehicles

Programme Area(s): Public Economics

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.

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Bibliographic Reference

Gillingham, K, Houde, S and Van Benthem, A. 2019. 'Consumer Myopia in Vehicle Purchases: Evidence from a Natural Experiment'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13736