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What is the Effect of Fuel Efficiency Information on Car Prices? Evidence from Switzerland

Inadequate information is often identified as a potential cause for the so-called "energy efficiency gap," i.e., the sluggish pace of investment in energy efficiency technologies, which potentially affects a wide variety of energy-using goods, including road vehicles. To improve the fuel economy of vehicles, in 2003 Switzerland introduced a system of fuel economy and CO2 emissions labels for new passenger cars, based on grades from A (best) to G (worst). We have data for all cars approved for sale in Switzerland from 2000 to 2011. Hedonic regressions suggest that there is a fuel-economy premium, but do not allow us to identify whether the fuel economy label has an additional effect on car price, above and beyond the effect of fuel economy. To circumvent this problem, we turn to a sharp regression discontinuity design based on the mechanism used by the government to assign cars to the fuel economy label, which estimates the effect of the A label on price to be 6-11%. Matching estimators find this effect to be 5%.

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Energy Specializations: Energy Efficiency – Barriers to Adoption; Energy Efficiency – Transportation End-use ; Transportation – Other; Transportation; Transportation – Policy Issues; Transportation – Internal combustion engines and diesel engines

JEL Codes: Q41: Energy: Demand and Supply; Prices, Q42: Alternative Energy Sources, Q54: Climate; Natural Disasters and Their Management; Global Warming

Keywords: Fuel economy, CO2 emissions, Passenger vehicles, Hedonic pricing model, Matching estimator, Regression discontinuity design, Fuel efficiency premium

DOI: 10.5547/01956574.37.3.aalb

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Published in Volume 37, Number 3 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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