The welfare effects of misperceived product costs: Data and calibrations from the automobile market

Hunt Allcott

    Research output: Contribution to journalArticlepeer-review

    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 pernew vehicle. Furthermore, even the most severe plausible underestimation of the financialbenefits of fuel economy cannot account for the consumer welfare gains attributed to fueleconomy standards.

    Original languageEnglish (US)
    Pages (from-to)30-66
    Number of pages37
    JournalAmerican Economic Journal: Economic Policy
    Volume5
    Issue number3
    DOIs
    StatePublished - 2013

    ASJC Scopus subject areas

    • Economics, Econometrics and Finance(all)

    Fingerprint Dive into the research topics of 'The welfare effects of misperceived product costs: Data and calibrations from the automobile market'. Together they form a unique fingerprint.

    Cite this