The Cost of Inaccurate Consumer Information: The Case of the EPA Mileage Figures

Abstract

The EPA fuel economy estimates for automobiles are an important instrument of public policy and are widely publicized. However, the accuracy of these figures, for use by consumers as an estimate of actual on‐the‐road mileage, has come under increasing challenge. Consumers Union provides alternative fuel efficiency estimates for the cars it tests, based on actual on‐the‐road driving. This study calculates the costs of in‐accuracies in the EPA's Estimated Mileage, assuming consumers use those figures in making their automobile purchase decisions, but in actual driving achieve mileage equivalent to the Consumers Union's figures. The economic impact includes potentially large unanticipated additional expenditures on gasoline by consumers and in a few cases unexpected gasoline savings; also included is a net social welfare loss due to allocative error. This loss provides a measure of the gains to society obtainable from improvements in the reliability of the EPA estimates as a source of mileage information for consumers.