Wednesday, September 1, 2010

Eco-nomics: Information and Behavior

Would people make more energy efficient decisions if they better understood the consequences of their choices?  The EPA thinks yes, and they are probably right.  The traditional MPG measure can be very misleading the difference between a 15 MPG can and a 10 MPG car is much greater than a 25 MPG car relative to a 20 MPG car even though in both cases it is a 5 MPG bump.  In fact many haver suggested that the ratio should be inverted to GPM.  This would give people a better way to make more meaningful relative comparisons.  To see what I mean, consider that moving from a 10 to a 15 MPG car yields a 33% gas savings for the same driving while a 20 to a 25 MPG car yields a 20% savings.

So now the EPA is going to give this information on the new car window stickers they mandate.  Notice that below the MPG is a figure of gallons per 100 miles.  Even better they are giving the average fuel costs for the car based on, in this case, 15,000 miles of driving and a $2.88 fuel price.   The actual and price matter less than the fact that if consistent, consumers can easily assess the differential cost of buying that big SUV relative to a minivan for example.

News reports seem to be focusing on the new letter grades for fuel economy stickers that will accompany the remade traditional sticker above, but I think the sticker above is a pretty powerful change for the better. Still no substitute for a carbon tax though...

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