American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Are Consumers Myopic? Evidence from New and Used Car Purchases
American Economic Review
vol. 103,
no. 1, February 2013
(pp. 220–56)
Abstract
We investigate whether car buyers are myopic about future fuel costs. We estimate the effect of gasoline prices on short-run equilibrium prices of cars of different fuel economies. We then compare the implied changes in willingness-to-pay to the associated changes in expected future gasoline costs for cars of different fuel economies in order to calculate implicit discount rates. Using different assumptions about annual mileage, survival rates, and demand elasticities, we calculate a range of implicit discount rates similar to the range of interest rates paid by car buyers who borrow. We interpret this as showing little evidence of consumer myopia. (JEL D12, H25, L11, L62, L71, L81)Citation
Busse, Meghan R., Christopher R. Knittel, and Florian Zettelmeyer. 2013. "Are Consumers Myopic? Evidence from New and Used Car Purchases." American Economic Review, 103 (1): 220–56. DOI: 10.1257/aer.103.1.220Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms
- L62 Automobiles; Other Transportation Equipment
- L71 Mining, Extraction, and Refining: Hydrocarbon Fuels
- L81 Retail and Wholesale Trade; e-Commerce