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Do Energy Eciency Standards Hurt Consumers? Evidence from Household Appliance Sales

We examine the effect of energy efficiency standards on the clothes washers market using a constant-quality price index constructed from same-model price changes for a significant majority of clothes washer models sold in the United States between 2001 and 2011. We find constant-quality prices fell over time, while quality increased, particularly around times energy standards changed. We estimate total welfare changes by assuming the difference between average price and constant-quality price indicates average quality. Further examination shows product entry and exit are associated with changes federal standard for energy efficiency. With policy changes implicitly coordinating entry and exit, average vintage sharply falls when standards change. Controlling for individual model and time effects, we find that lower average vintage is associated with more rapidly falling prices, an effect we attribute to increased competition. We also find a strong relationship between clothes washer prices and average vintage of the same manufacturer, which indicates cannibalism explains much of the declining price of clothes washers over time. We apply the same methodology to other appliances (clothes dryer, room air conditioners and refrigerators) which did not experience simultaneous efficiency standard changes between 2001 and 2011. We see the same cannibalism in the market for clothes dryers, but not for room air conditioners or refrigerators. We also find notable improvements both in the characteristics of clothes washers that directly improve energy efficiency and those that promote convenience and space-saving. Energy efficiency standards appear to facilitate more rapid innovation and price declines.

Revised version, posted December 22, 2016

working Paper


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