Are home buyers inattentive? Evidence from capitalization of energy costs

Research output: Contribution to journalArticle

Abstract

This paper explores whether home buyers are attentive to energy costs. The cost- effectiveness of market- based pollution policies crucially depends on whether consumers are attentive to energy costs when purchasing energy- using durables. I exploit energy-cost variation from fuel-price changes in Massachusetts where there is significant overlap in the geographic and age distributions of oil- heated and gas- heated homes. The results strongly reject that home buyers are unresponsive to energy costs under a wide range of consumption and discount-rate assumptions. Furthermore, my preferred specification is consistent with full capitalization of fuel expenditures at discount rates similar to mortgage interest rates.

Original languageEnglish (US)
Pages (from-to)165-188
Number of pages24
JournalAmerican Economic Journal: Microeconomics
Volume11
Issue number2
DOIs
StatePublished - May 1 2019

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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