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How Much Do Consumers Value Fuel Cost Savings? Evidence from the Passenger Vehicle Leasing Market

How Much Do Consumers Value Fuel Cost Savings? Evidence from the Passenger Vehicle Leasing Market

Full Title: How Much Do Consumers Value Fuel Cost Savings? Evidence from the Passenger Vehicle Leasing Market
Author(s): Benjamin Leard, Kevin Ankney
Publisher(s): Resources for the Future
Publication Date: August 25, 2021
Full Text: Download Resource
Description (excerpt):

Vehicle leasing involves a consumer renting a car for an average of three years. Given the typical lease length, we show that estimating valuation of leased vehicle fuel costs is fundamentally different from estimating valuation of purchased vehicle fuel costs. We find that new vehicle lessees and buyers both undervalue lifetime fuel costs. But because leasing periods last about three years, new vehicle lessees fully value lease-specific fuel costs. Our estimates also imply that leasing companies set residual values, defined as the post-lease expected value of the vehicle, with the expectation that used vehicle buyers undervalue post-lease fuel costs.

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