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

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  • Jonathan E. Hughes
  • Christopher R. Knittel
  • Daniel Sperling

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. The short-run price and income elasticities of gasoline demand in the United States during the 1970s and 1980s have been studied extensively. However, 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. 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

  • Jonathan E. Hughes & Christopher R. Knittel & Daniel Sperling, 2008. "Evidence of a Shift in the Short-Run Price Elasticity of Gasoline Demand," The Energy Journal, , vol. 29(1), pages 113-134, January.
    • Handle: RePEc:sae:enejou:v:29:y:2008:i:1:p:113-134
    DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No1-9
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    References listed on IDEAS

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    1. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
    2. Kayser, Hilke A., 2000. "Gasoline demand and car choice: estimating gasoline demand using household information," Energy Economics, Elsevier, vol. 22(3), pages 331-348, June.
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    Cited by:

    1. Kilian, Lutz & Zhou, Xiaoqing, 2024. "Heterogeneity in the pass-through from oil to gasoline prices: A new instrument for estimating the price elasticity of gasoline demand," Journal of Public Economics, Elsevier, vol. 232(C).
    2. Huntington, Hillard G., 2024. "US gasoline response to vehicle fuel efficiency: A contribution to the direct rebound effect," Energy Economics, Elsevier, vol. 136(C).

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