WASHINGTON—You get what you pay for, the old adage goes. Now, a new report from Resources for the Future (RFF) finds that people often miss energy cost savings simply by being inattentive.
In Consumer Inattention and Demand for Energy Cost Savings, author RFF Fellow Benjamin Leard uses survey data to examine the relationship between a potential source of undervaluation—consumer inattention—and demand for energy-efficient products.
In markets with clear choices, the price of greater energy efficiency reflects its benefits. With distortions that contribute to inattention, however, markets may undervalue energy efficiency, which has become known as the “energy paradox” or the “energy efficiency gap.”
The study finds that the average respondent significantly undervalues energy cost savings: He or she is willing to pay 45 cents to reduce present-value lifetime fuel costs by one dollar. The data further suggest that nearly a quarter of respondents are inattentive to automobile fuel costs when making a purchasing decision. These respondents are willing to pay significantly less for fuel cost savings from which they would benefit.
Dr. Leard notes, “Encouraging these consumers to pay attention to fuel costs when making a purchase decision would likely increase the fuel economy of vehicles on the road and reduce greenhouse gas emissions.”
Read the full report: Consumer Inattention and Demand for Energy Cost Savings.