Can Standards Increase Consumer Welfare? Evidence from a Change in Clothes Washer Energy Efficiency Requirements

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We study prices and sales of individual clothes washer models before, during and after a 2007 standard that banned manufacture (but not sale) of low-efficiency units and increased the threshold for Energy Star certification. While quantities sold of washer models banned from manufacture decreased sharply, prices for banned models increased only modestly. At the same time, sales of higher-efficiency units rose markedly while prices for high-efficiency units declined. On average, washer efficiency increased but prices changed little. A simple welfare analysis indicates that consumer welfare loss from banned washers was far outweighed by gains from lower-priced high-efficiency units. While a full cost-benefit analysis is not feasible with the available data, we estimate a lower-bound gain in consumer surplus equal to 6-16 percent of total sales. This result may accord with earlier theoretical research that shows quality standards can increase welfare in monopolistically competitive industries that possess increasing returns to scale (Ronnen, 1991). Thus, if energy efficiency is a close proxy for quality, energy efficiency standards may increase competition, market efficiency and welfare.

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