Gasoline prices, fuel economy, and the energy paradox

Hunt Allcott, Nathan Wozny

    Research output: Contribution to journalReview articlepeer-review


    Policymakers often assert that consumers undervalue future gasoline costs when they buy automobiles. We test this by measuring whether relative prices of vehicles with different fuel economy ratings fully adjust to variation in gasoline prices. Vehicle pricesmove as if consumers are indifferent between $1.00 in discounted future gas cost and $0.76 in vehicle purchase price. We showhowcorrections for endogenous market shares and utilization, measurement error, and different gasoline price forecasts affect the results. We also provide unique evidence of sticky information: vehicle markets respond to changes in gasoline prices with up to a six-month delay.

    Original languageEnglish (US)
    Pages (from-to)779-795
    Number of pages17
    JournalReview of Economics and Statistics
    Issue number5
    StatePublished - Dec 1 2014

    ASJC Scopus subject areas

    • Social Sciences (miscellaneous)
    • Economics and Econometrics


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