College of Agriculture & Natural Resources
Agricultural & Resource Economics

Seminar (11:30am): Kenneth Gillingham - Yale University - Consumer Myopia in Vehicle Purchases: Evidence from a Natural Experiment

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Wednesday, May. 1, 11:30am
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3121 Symons Hall
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Kenneth Gillingham - Yale University


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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