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Energy Consumers vs. Regulators: Who Knows Best? (Mercatus study stands up to critics)

By <a class="post-author" href="/about#tfisher">Travis Fisher</a> -- August 6, 2012

“Perhaps the main failure of rationality is that of the regulators themselves.”

-Ted Gayer and W. Kip Viscusi, authors, Overriding Consumer Preferences with Energy Regulations

In a working paper for the Mercatus Center titled Overriding Consumer Preferences with Energy Regulations, economists Ted Gayer and W. Kip Viscusi examine several energy use regulations and the accompanying Benefit-Cost Analyses (BCAs). They find the regulations would not pass a BCA (provide net benefits) without two assumptions: first, that individuals make systematic and financially significant mistakes in their energy consumption choices, and second, that government policies can correct these mistakes.

The regulations cited in the paper include mileage requirements for vehicles and energy efficiency standards for household appliances and light bulbs. The BCA numbers are telling – the authors show, for example, that the vast majority (about 85 percent) of the estimated benefits of the mileage requirements proposed in 2011 accrue to the individual user, mostly in the form of avoided fuel costs.…