Report

Consumer Inattention and Demand for Energy Cost Savings

Aug 3, 2017 | Benjamin Leard

Summary

New research suggests that inattentive consumers significantly undervalue vehicle fuel cost savings. Policies designed to encourage greater consumer attention would likely increase the fuel economy of vehicles on the road and reduce GHG emissions.

Key Findings

  • Recent economics literature focusing on automobiles has found conflicting evidence for consumer undervaluation of fuel cost savings, which has implications for the design of policies to encourage energy efficiency.
  • This paper expands the literature by analyzing whether attention plays a role in how consumers value fuel cost savings in automobiles.
  • The data suggest that nearly a quarter of respondents are inattentive to automobile fuel costs when making a purchase decision, and that these respondents are willing to pay significantly less for fuel cost savings.
  • Policies designed to promote energy efficiency may be improved by carefully accounting for consumer attention.

Abstract

Consumer undervaluation of energy cost savings is a common explanation for the energy efficiency gap, where markets fail to adopt fuel-saving technologies even though the value of energy savings exceeds the costs. This paper presents empirical evidence on the relationship between a potential source of undervaluation—consumer inattention—and demand for energy-efficient products. Using survey data on respondents’ attention to automobile fuel costs, attribute preferences, and discrete choice experiments, I find heterogeneity in inattention toward and willingness to pay for fuel cost savings. Estimates from discrete choice models suggest that inattentive consumers undervalue fuel cost savings and attentive consumers fully value these savings. The results imply that designing energy efficiency policies requires careful consideration of consumer inattention.