I am a pretty hardcore neoclassical economist. I do think that people generally try and make themselves as happy as possible given budgetary and other physical constraints. I do think firms try to maximize profits. I do believe that smart government policy can correct market failures (e.g. negative externalities like pollution, inadequate provision of public goods, asymmetric information). I do believe that markets are an incredible way to allocate scarce resources.
Underlying this belief system is an assumption that participants in markets have easy access to reliable information about pretty much everything. This is clearly not true in many settings, but when it comes to bigger purchases individuals tend to go to great lengths to gather as much information about possible alternative options. So when it came to buying a new car, I tried to channel my inner Zettelmeyer/Knittel and got every piece of information I could find on hybrid, Diesel, and plugin hybrid vehicles in my price range. I test drove all of them. I had spreadsheets that took into account basic things like the number of miles driven, depreciation, fuel cost, changes in electric rates, length of average trip taken etc., etc.
I settled on the Ford C-Max Plug-in hybrid. Even though I complained that even under reasonable increases in gas prices the plugin had similar if not worse costs per mile, the subsidies were just too good. Even if I did not plug it in, I would not be worse off than had I bought the regular hybrid.
Now it’s a month later and my neoclassical soul is deeply in love. It’s got nothing to do with my a priori dollars and cents calculations. Here is what I have learned:
- I literally feel like I am a better person driving down the road. If I dim my configurable cabin lighting, and squint my eyes, I can see my own halo. Watch me snicker at those earth crushing SUVs and their clearly non-haloed drivers.
- My Teutonic road rage tendencies have disappeared. Why? My car is so quiet. At the traffic light, all I hear is some quiet Schubert oozing out of the speakers reaching for my halo. And while I am driving, the absence of that Rambo-esque roar from my former turbo engine lowers my testosterone levels by a lot.
- I am no longer maximizing quarter mile speed on the on ramp. I am trying to squeeze every last mile out of that battery pack in the back. Those AB32 covered kWhs I pumped in there better last all the way to Berkeley.
- My kid loves (un)plugging the car every day. It makes me feel like I am investing in a future generation’s appreciation for low carbon transport. OK, maybe I am taking this a bit too far.
- I don’t spend time at gas stations. The weekly trip has turned into a monthly trip. That will surely diminish my Snickers consumption as well.
So while I could squeeze all of the above into some fancy economic model, which involves learning by using, this did not enter my financial calculations that made me choose this car. I would like to end 2014 by saying that I sometimes tend to take the net present value calculations a card carrying neoclassical economist is supposed to base every decision on a bit too seriously. I may just use 2015 to go and live a little. Who knows, maybe I’ll even install some solar PV on my roof (which actually might be the right decision purely based on a NPV calculation).
I wish all of you a very good start into 2015 and we will see you back here next year. There are many exciting developments in the world of energy and we will blog about them right here!
Maximilian Auffhammer is the George Pardee Professor of International Sustainable Development at the University of California Berkeley. His fields of expertise are environmental and energy economics, with a specific focus on the impacts and regulation of climate change and air pollution.