DP13736 Consumer Myopia in Vehicle Purchases: Evidence from a Natural Experiment
|Author(s):||Kenneth Gillingham, Sebastien Houde, Arthur Van Benthem|
|Publication Date:||May 2019|
|Keyword(s):||fuel economy, myopia, regulation, Undervaluation, Vehicles|
|JEL(s):||D12, H25, L11, L62, L71, Q4|
|Programme Areas:||Public Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=13736|
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.