Don't Know Enough About You

Standing Peggy Lee on her head, the EPA and NHTSA admit that while they know a lotta things (mostly engineering assumptions) about a little bit (CAFE standards), they don't understand why consumers don't buy it;

EPA also acknowledges that “it is a conundrum from an economic perspective that these large fuel savings have not been provided by automakers and purchased by consumers.”...Rather than explore possible determinants of consumer choice other than fuel economy, EPA then proceeds to conjecture possible justifications. The first justification offered amounts to an assertion of consumer irrationality, in that “consumers put little weight on benefits from fuel economy in the future and show high discount rates.”...

Another justification hints at a systematic behavioral bias without offering specifics: “Fuel savings in the future are uncertain, while at the time of purchase the increased costs of fuel-saving technologies are certain and immediate.”...

Another justification seems grounded in neither neoclassical economics nor behavioral economics: “Consumers may not be able to find the vehicles they want with improved fuel economy.”...

The other justifications largely amount to problems of inadequate information, such as the reasoning that fuel-economy benefits are not salient enough to consumers, that consumers have difficulty calculating expected fuel savings, or that consumers might associate higher fuel economy with inexpensive, less well-designed vehicles....

Among the list of justifications for the “paradox” are acknowledgements that it could be a consequence of EPA’s miscalculation or omitted variables, in that “factors such as transaction costs and differences in quality may not be adequately measured” and “there is likely to be variation among consumers in the benefits they get from improved fuel economy.”

The above is from Ted Gayer and Kip Viscusi's working paper, OVERRIDING CONSUMER PREFERENCES WITH ENERGY REGULATIONS.  Who also point out that the two agencies have a very odd idea of what a benefit to Americans is;

Even these comparatively modest benefits overstate the benefits to the U.S. citizenry, since they also include the climate-change related benefits to other countries of reduced emissions within the United States....To the best of our knowledge, this is the first situation in which benefits to countries other than the United States have been included in a regulatory impact analysis.

Thanks to the good people at The Knowledge Problem for the tip.