Ecuador’s Automotive Fuel Subsidy Crisis: A (Brief) Behavioral Science Perspective

Ecuador's automotive fuel prices have been subsidized since the 1970s, keeping fuel costs (artificially) low for local consumption. In February of 2024, for example, a gallon of regular gas cost US$2.40 in Ecuador—compared to around US$3.36 in the US.^1,2

Although this might sound great, think again! While these subsidies are fantastic when you’re filling up your tank (I personally love saving on gas!), they bear a significant financial burden on the Ecuadorian government. This strategy that may have worked 50 years ago no longer works today thanks to a variety of reasons like global changes in oil prices, increased domestic consumption of fuel, budget deficits, and national debt, just to name a few. Instead, these subsidies eat away at an already weak national budget, diverting funds from other essential areas such as healthcare, education, security, and infrastructure development.

Over the past five years, we Ecuadorians have lived through three separate government-led attempts to eliminate automotive fuel subsidies—some more successful than others. Although necessary, these attempts have been met with great resistance and often resulted in nationwide social unrest. 

While many lenses have been applied to better understand the root of this resistance, today we will take a look at fuel subsidies through a behavioral science lens. This approach not only explains the underlying cognitive factors at the core of the problem but can also offer concrete strategies that, hopefully, let us avoid situations like the ones we have struggled with up until late.