Abstract：

Regulators attest that tightened energy efficiency standards save consumers money. The more efficient light bulbs, appliances, and vehicles cost more upfront but reduce consumers’ annual energy expenses by more than enough to pay for those upfront costs. That claim implies a market failure or irrationality: absent the regulation, buyers underinvest in fuel economy. We use survey data on American cars and their drivers to examine whether each individual driver would in fact be better off in a more expensive but more fuel efficient car, given the gas prices they face and their individual annual miles of driving—either anticipated miles at the time of purchase or realized annual miles years later. We find the regulators’ claim may be true, but only on average. Some drivers could likely have saved money by spending more upfront for more efficient cars. But many other drivers could have saved money by purchasing less expensive, less fuel efficient cars. In fact we find little correlation between individual drivers’ annual fuel expenditures and the fuel economy of the cars they drive. A driver’s income, sex, age, and education are far more closely associated their vehicle’s fuel economy than their anticipated or actual fuel expenses. We can rule out several explanations for the disconnect. Rich drivers are not more sensitive to fuel expenses than poorer drivers, undermining claims that borrowing constraints prevent low-income consumers from investing in fuel efficiency. And the disconnect between fuel expenses and vehicle choice holds whether we examine anticipated or realized mileage, suggesting that mistaken expectations do not explain the misallocation.

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