A Decomposition of the Price and Income Elasticities of the Consumer Demand for Gasoline

The authors specify and estimate a model of the short-run demand for gasoline which allows them to decompose a consumer's gasoline demand elasticities into miles-driven and driving-efficiency components. Their model is estimated using detailed household survey data which allows direct focus on the short run, holding both the household's automobile stock and demographic profile fixed. Among the most interesting results are: (1) The data allow interesting insights to be drawn into the interrelationship between these important variables and household behavior with respect to gasoline consumption, miles driven, and driving efficiency. (2) The gasoline demand behavior of one-car and multi-car households differ significantly from each other. Evaluated at overall sample means, one-car households have higher (in absolute value) price elasticites for gasoline, miles driven and fuel-efficiency demand. Conversely, multi-car households have higher (in absolute value) total expenditure elasticities for each category. (3) For both one-car and multi-car households, roughly 75% of the estimated price elasticity and roughly 80% of the estimated total-expenditure elasticity of gasoline demand stem from the miles-driven component. The estimated fuel-efficiency elasticities, though smaller than their standard errors, indicate that households respond to changes in prices and total-expenditure levels not only by changing the number of miles theymore » drive, but also by changing the efficiency with which they drive them. 23 references, 3 tables.« less