Do Consumers Recognize the Value of Fuel Economy? Evidence from Used Car Prices and Gasoline Price Fluctuations

James Sallee, Sarah West and Wei Fan

No 21441, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Debate about the appropriate design of energy policy hinges critically on whether consumers might undervalue energy efficiency, due to myopia or some other manifestation of limited rationality. We contribute to this debate by measuring consumers' willingness to pay for fuel economy using a novel identification strategy and high quality microdata from wholesale used car auctions. We leverage differences in future fuel costs across otherwise identical vehicles that have different current mileage, and therefore different remaining lifetimes. By seeing how price differences across high and low mileage vehicles of different fuel economies change in response to shocks to the price of gasoline, we estimate the relationship between vehicle prices and future fuel costs. Our data suggest that used automobile prices move one for one with changes in present discounted future fuel costs, which implies that consumers fully value fuel economy.

JEL-codes: H23 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-ene, nep-reg and nep-tre
Note: EEE PE
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Citations: View citations in EconPapers (5)

Published as James M. Sallee & Sarah E. West & Wei Fan, 2016. "Do consumers recognize the value of fuel economy? Evidence from used car prices and gasoline price fluctuations," Journal of Public Economics, .

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Journal Article: Do consumers recognize the value of fuel economy? Evidence from used car prices and gasoline price fluctuations (2016)
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