Evidence of a Shift in the Short-Run Price Elasticity of Gasoline Demand

33 Pages Posted: 25 Sep 2006 Last revised: 28 Sep 2010

See all articles by Jonathan E. Hughes

Jonathan E. Hughes

University of Colorado at Boulder - Department of Economics

Christopher R. Knittel

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Daniel Sperling

University of California, Davis - Institute of Transportation Studies

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Date Written: September 2006

Abstract

Understanding the sensitivity of gasoline demand to changes in prices and income has important implications for policies related to climate change, optimal taxation and national security, to name only a few. While the short-run price and income elasticities of gasoline demand in the United States have been studied extensively, the vast majority of these studies focus on consumer behavior in the 1970s and 1980s. There are a number of reasons to believe that current demand elasticities differ from these previous periods, as transportation analysts have hypothesized that behavioral and structural factors over the past several decades have changed the responsiveness of U.S. consumers to changes in gasoline prices. In this paper, we compare the price and income elasticities of gasoline demand in two periods of similarly high prices from 1975 to 1980 and 2001 to 2006. The short-run price elasticities differ considerably: and range from -0.034 to -0.077 during 2001 to 2006, versus -0.21 to -0.34 for 1975 to 1980. The estimated short-run income elasticities range from 0.21 to 0.75 and when estimated with the same models are not significantly different between the two periods.

Suggested Citation

Hughes, Jonathan E. and Knittel, Christopher R. and Sperling, Daniel, Evidence of a Shift in the Short-Run Price Elasticity of Gasoline Demand (September 2006). NBER Working Paper No. w12530. Available at SSRN: https://ssrn.com/abstract=931375

Jonathan E. Hughes

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States

Christopher R. Knittel (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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E62-416
Cambridge, MA 02142
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Daniel Sperling

University of California, Davis - Institute of Transportation Studies ( email )

One Shields Ave
davis, CA 95616
United States

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