Consumer Myopia in Vehicle Purchases: Evidence from a Natural Experiment
SeriesSpatial Economics Seminar
Speaker(s)Arthur van Benthem (University of Pennsylvania, United States)
LocationTinbergen Institute, room 1.01
Date and time
May 23, 2019
12:15 - 13:15
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.
Joint work with Kenneth Gillingham and Sebastien Houde.