Discussion paper

DP13736 Consumer Myopia in Vehicle Purchases: Evidence from a Natural Experiment

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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Citation

van Benthem, A, S Houde and K Gillingham (eds) (2019), “DP13736 Consumer Myopia in Vehicle Purchases: Evidence from a Natural Experiment”, CEPR Press Discussion Paper No. 13736. https://cepr.org/publications/dp13736