Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/194137
Authors: 
Houde, Sébastien
Myers, Erica
Year of Publication: 
2019
Series/Report no.: 
Economics Working Paper Series 19/314
Abstract: 
Quantifying heterogeneity in consumers' misperceptions of product costs is crucial for policy design. We illustrate this point in the energy context and the design of Pigouvian policies. We estimate non-parametric distributions of perceptions of energy costs in the U.S. appliance market using a revealed preference approach. We show that the average degree of misperception is misleading - while the largest share of consumers correctly perceives energy costs, a significant share undervalues them, and smaller shares either significantly overvalues or completely ignores them. We show that setting a tax based on mean misperception deviates substantially from the optimal tax that accounts for heterogeneous misperceptions. While correctly characterizing misperception is crucial for setting optimal Pigouvian taxes for externalities, it is less important for setting optimal standards. We find that standards can largely outperform taxes. Standards' advantage is they reduce variance in energy operating costs relative to taxes, which internalizes distortionary effects from misperceptions.
Subjects: 
demand estimation
misperceptions
energy efficiency gap
behavioral welfare economics
JEL: 
Q41
Q50
L15
D12
D83
Persistent Identifier of the first edition: 
Document Type: 
Working Paper
Social Media Mentions:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.