How Much Do Consumers Value Fuel Economy and Performance? Evidence from Technology Adoption

Abstract

During historical periods in which US fuel economy standards were unchanging, automakers increased performance but not fuel economy, contrasting with recent periods of tightening standards and rising fuel economy. This paper evaluates the welfare consequences of automakers forgoing performance increases to raise fuel economy as standards have tightened since 2012. Using a unique data set and a novel approach to account for fuel economy and performance endogeneity, we find undervaluation of fuel cost savings and high valuation of performance. Welfare costs of forgone performance approximately equal expected fuel savings benefits, suggesting approximately zero net private consumer benefit from tightened standards.

Consumer Myopia in Vehicle Purchases: Evidence from a Natural Experiment

“…The valuation parameters in Busse, Knittel, and Zettelmeyer (2013), Sallee, West, andFan (2016), andGrigolon, Reynaert, andVerboven (2018) are all close to one, which implies near-full valuation. While Allcott and Wozny (2014) and Leard, Linn, and Zhou (2018) find parameters consistent with undervaluation, our estimates are even lower. Our estimates, however, align with the heterogeneous estimates of Leard, Linn, and Springel (2019), which range from 0.06 to 0.76 but are below 0.30 for most demographic groups.…”

“…Busse, Knittel, and Zettelmeyer (2013) use estimates based on both the new and used vehicle markets. But our study is not the only one focusing on new cars (e.g., Grigolon, Reynaert, and Verboven 2018;Leard, Linn, and Zhou 2018). It is possible that buyers of new Hyundais and Kias are different.…”

“…If consumers respond more to a change in upfront cost relative to future costs, this is taken as evidence of undervaluation of energy efficiency, or what is often described as myopia. It has become common to operationalize the valuation of energy efficiency through a valuation parameter, defined as the consumer response to the net present value of future fuel costs over the response to the purchase price (e.g., Allcott and Wozny 2014;Sallee, West, and Fan 2016;Grigolon, Reynaert, and Verboven 2018;Leard, Linn, and Zhou 2018). 17…”

“…Taken together, these studies suggest modest undervaluation at most. 6 In contrast, Leard, Linn, and Zhou (2018) use data from new vehicles in the United States and exploit the timing of adoption of fuel-saving technologies.…”

Environmental, Redistributive and Revenue Effects of Policies Promoting Fuel Efficient and Electric Vehicles

“…Similarly, Huse & Koptyug (2021) nd that both future fuel costs and vehicle registration taxes are undervalued in comparison to upfront costs with registration taxes presenting the strongest undervaluation. Other empirical work on this topic shows mild to moderate undervaluation if any at all (Busse, Kni el, & Ze elmeyer 2013, Allco & Wozny 2014, Leard, Linn, & Zhou 2021.…”