A Tale of Two Tails: Commuting and the Fuel Price Response in Driving

39 Pages Posted: 19 Dec 2016

See all articles by Kenneth Gillingham

Kenneth Gillingham

Yale University

Anders Munk-Nielsen

University of Copenhagen - Department of Economics

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Date Written: December 2016

Abstract

The consumer price responsiveness of driving demand is central to the welfare consequences of fuel price changes. This study uses rich data covering the entire population of vehicles and consumers in Denmark to find a medium-run price elasticity of driving of -0.30. We uncover an important feature of driving demand: two small groups of much more responsive households that make up the lower and upper tails of the work distance distribution. The first group lives close to work in urban areas. The second group lives outside of major urban areas and has the longest commutes. Access to public transport appears to be the force behind the existence of the tails, enabling the switch away from driving. We find that a fuel price increase of 1 DKK/liter implies an average deadweight loss of 0.66 DKK/liter, but there is considerable heterogeneity and the tails bear a larger share of the loss.

Suggested Citation

Gillingham, Kenneth and Munk-Nielsen, Anders, A Tale of Two Tails: Commuting and the Fuel Price Response in Driving (December 2016). NBER Working Paper No. w22937. Available at SSRN: https://ssrn.com/abstract=2887199

Kenneth Gillingham (Contact Author)

Yale University ( email )

New Haven, CT 06511
United States
203-436-5465 (Phone)

HOME PAGE: http://www.yale.edu/gillingham

Anders Munk-Nielsen

University of Copenhagen - Department of Economics ( email )

Ă˜ster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

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