American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
The Welfare Effects of Misperceived Product Costs: Data and Calibrations from the Automobile Market
American Economic Journal: Economic Policy
vol. 5,
no. 3, August 2013
(pp. 30–66)
Abstract
This analysis exploits new data from the Vehicle Ownership and Alternatives Survey, which elicits beliefs over the financial benefits of owning higher fuel economy vehicles. The data are used to test for underestimation and to document evidence of "MPG Illusion": consumers think as if fuel costs scale linearly in miles per gallon instead of gallons per mile. Counterfactuals suggest that the MPG Illusion reduces welfare by less than $4 per new vehicle. Furthermore, even the most severe plausible underestimation of the financial benefits of fuel economy cannot account for the consumer welfare gains attributed to fuel economy standards.Citation
Allcott, Hunt. 2013. "The Welfare Effects of Misperceived Product Costs: Data and Calibrations from the Automobile Market." American Economic Journal: Economic Policy, 5 (3): 30–66. DOI: 10.1257/pol.5.3.30Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- D83 Search; Learning; Information and Knowledge; Communication; Belief
- L62 Automobiles; Other Transportation Equipment
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