>Evaluating the Consumer Response to Fuel Economy: A Review of the Literature

Abstract

How consumers evaluate trade-offs between the cost of buying additional fuel economy and the expected fuel savings that result is an important underlying determinant of the overall cost of national fuel economy standards. Models of vehicle choice are a means to predict the change in consumers' vehicle purchase patterns, as well as the effects of these changes on compliance costs and consumer surplus. This paper surveys the literature on vehicle choice models and finds a wide range in methods and results. A large puzzle raised is whether automakers build into their vehicles as much fuel economy as consumers are willing to purchase. This paper examines possible reasons why there may be a gap between the amount consumers are willing to pay for fuel economy and the amount that automakers provide, though there is insufficient evidence on the relative roles of these various hypotheses. Further research on the role of fuel economy in consumer vehicle purchases is needed to assist in understanding the welfare effects of fuel economy regulation.

Assessing the Energy-Efficiency Gap

“…Yet the evidence on consumer valuation of fuel economy is mixed (Greene 2010;Helfand and Wolverton 2011). One study has found that consumers are indifferent between $0.76 now and $1.00 of discounted future gasoline expenditures, suggesting mild undervaluation of fuel economy that could be due to myopia (Allcott and Wozny 2014).…”

“…If firms believe consumers are myopic and therefore undervalue energy efficiency, product offerings will not be optimal from a social perspective, even if firms hold incorrect beliefs about consumer preferences. Studies of the automotive industry posit several explanations for the apparently suboptimal level of fuel economy that manufacturers provide (Helfand and Wolverton 2011).…”

“…Analyses that assess the correlation between energy and nonenergy attributes for different 42 The earlier section on myopia contains a more detailed discussion of the findings of these three papers. Also, see Bento et al (2009), Greene (2010, and Helfand and Wolverton (2011) for more detailed discussions of automobile choice models and consumer valuation of fuel economy.…”

Assessing the Energy-Efficiency Gap

“…For example, high implicit discount rates for home energy investments could also be rationalized by moral hazard: contractors may provide low quality services, and consumers may use high hurdle rates to insulate themselves from this risk (Giraudet and Houde 2014). 38 Automobile purchases provide a good setting to study these questions because such purchases are major decisions, about which consumers presumably think carefully, and because the cost of gasoline has varied substantially over time (Helfand and Wolverton 2011). One study has found that consumers are indifferent between $0.76 now and $1.00 of discounted future gasoline expenditures, suggesting the possibility of myopia or undervaluation of fuel economy (Allcott and Wozny 2014).…”

An Assessment of the Energy-Efficiency Gap and Its Implications for Climate Change Policy

“…Automobile purchases provide a good setting to study these questions because such purchases are major decisions, about which consumers presumably think carefully, and because the cost of gasoline has varied substantially over time (Helfand and Wolverton 2011). One study found that consumers are indifferent between $0.76 now and $1.00 of discounted future gasoline expenditures, suggesting the possibility of myopia or undervaluation of fuel economy (Allcott and Wozny 2013).…”