Consumer Myopia in Vehicle Purchases: Evidence from a Natural Experiment
CER-ETH – Center of Economic Research at ETH Zurich Working Paper 19/321
59 Pages Posted: 6 Jun 2019
Date Written: May 7, 2019
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
JEL Classification: D12, H25, L11, L62, L71, Q4
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