Do energy efficiency standards hurt consumers? Evidence from household appliance sales

Abstract

We build novel welfare-based price indices for major household appliances that leverage changes in same-model prices and how consumers substitute between exiting, continuing and new models. We then evaluate how minimum energy efficiency requirements and changing criteria for Energy Star™ labels affected these indices in the U.S. between 2001 and 2011, a period of time when some appliances experienced standard changes while others did not. We find that prices declined while quality and consumer welfare increased, especially when standards become more stringent. We also find that much of the price index decline can be attributed to standards-induced innovation, or cannibalism, not to inter-manufacturer competition. Our results also add to a growing body of evidence that the Consumer Price Index exaggerates inflation due to inadequate account of quality and substitution to new goods.