IDEAS home Printed from https://ideas.repec.org/a/bla/randje/v52y2021i4p945-994.html
   My bibliography  Save this article

Measuring long‐run gasoline price elasticities in urban travel demand

Author

Listed:
  • Javier D. Donna

Abstract

I develop a structural model of urban travel to estimate long‐run gasoline price elasticities. I model the demand for transportation services using a dynamic discrete‐choice model with switching costs and estimate it using a panel dataset with public market‐level data on automobile and public transit use in Chicago. Long‐run own‐ (automobile) and cross‐ (transit) price elasticities are substantially more elastic than short‐run elasticities. Elasticity estimates from static and myopic models are downward biased. I use the estimated model to evaluate the response to several counterfactual policies. A gasoline tax is less regressive after accounting for the long‐run substitution behavior.

Suggested Citation

  • Javier D. Donna, 2021. "Measuring long‐run gasoline price elasticities in urban travel demand," RAND Journal of Economics, RAND Corporation, vol. 52(4), pages 945-994, December.
    • Handle: RePEc:bla:randje:v:52:y:2021:i:4:p:945-994
    DOI: 10.1111/1756-2171.12397
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1756-2171.12397
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1756-2171.12397?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Richard Baldwin & Paul Krugman, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(4), pages 635-654.
    2. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90, National Bureau of Economic Research, Inc.
    3. Oleksandr Shcherbakov, 2016. "Measuring consumer switching costs in the television industry," RAND Journal of Economics, RAND Corporation, vol. 47(2), pages 366-393, May.
    4. Sallee, James M. & West, Sarah E. & Fan, Wei, 2016. "Do consumers recognize the value of fuel economy? Evidence from used car prices and gasoline price fluctuations," Journal of Public Economics, Elsevier, vol. 135(C), pages 61-73.
    5. Gautam Gowrisankaran & Marc Rysman, 2012. "Dynamics of Consumer Demand for New Durable Goods," Journal of Political Economy, University of Chicago Press, vol. 120(6), pages 1173-1219.
    6. Poterba, James M, 1989. "Lifetime Incidence and the Distributional Burden of Excise Taxes," American Economic Review, American Economic Association, vol. 79(2), pages 325-330, May.
    7. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    8. Christine Boizot & Jean-Marc Robin & Michael Visser, 2001. "The demand for food products," Post-Print hal-03416605, HAL.
    9. James M. Poterba, 1991. "Is the Gasoline Tax Regressive?," NBER Chapters, in: Tax Policy and the Economy, Volume 5, pages 145-164, National Bureau of Economic Research, Inc.
    10. Kenneth Train, 1980. "A Structured Logit Model of Auto Ownership and Mode Choice," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(2), pages 357-370.
    11. Igal Hendel & Aviv Nevo, 2006. "Measuring the Implications of Sales and Consumer Inventory Behavior," Econometrica, Econometric Society, vol. 74(6), pages 1637-1673, November.
    12. Dahl, Carol & Sterner, Thomas, 1991. "Analysing gasoline demand elasticities: a survey," Energy Economics, Elsevier, vol. 13(3), pages 203-210, July.
    13. Boizot, Christine & Robin, Jean-Marc & Visser, Michael, 2001. "The Demand for Food Products: An Analysis of Interpurchase Times and Purchased Quantities," Economic Journal, Royal Economic Society, vol. 111(470), pages 391-419, April.
    14. Laurence Levin & Matthew S. Lewis & Frank A. Wolak, 2017. "High Frequency Evidence on the Demand for Gasoline," American Economic Journal: Economic Policy, American Economic Association, vol. 9(3), pages 314-347, August.
    15. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-638, June.
    16. Igal Hendel & Aviv Nevo, 2006. "Sales and consumer inventory," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 543-561, September.
    17. Pasquale Schiraldi, 2011. "Automobile replacement: a dynamic structural approach," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 266-291, June.
    18. Steven Berry & James Levinsohn & Ariel Pakes, 2004. "Differentiated Products Demand Systems from a Combination of Micro and Macro Data: The New Car Market," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 68-105, February.
    19. Jean‐Pierre Dubé & Günter J. Hitsch & Peter E. Rossi, 2010. "State dependence and alternative explanations for consumer inertia," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 417-445, September.
    20. Farrell, Joseph & Klemperer, Paul, 2007. "Coordination and Lock-In: Competition with Switching Costs and Network Effects," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 31, pages 1967-2072, Elsevier.
    21. Aguirregabiria, Victor & Mira, Pedro, 2010. "Dynamic discrete choice structural models: A survey," Journal of Econometrics, Elsevier, vol. 156(1), pages 38-67, May.
    22. Sanghamitra Das & Mark J. Roberts & James R. Tybout, 2007. "Market Entry Costs, Producer Heterogeneity, and Export Dynamics," Econometrica, Econometric Society, vol. 75(3), pages 837-873, May.
    23. Christopher R. Knittel & Ryan Sandler, 2018. "The Welfare Impact of Second-Best Uniform-Pigouvian Taxation: Evidence from Transportation," American Economic Journal: Economic Policy, American Economic Association, vol. 10(4), pages 211-242, November.
    24. Paul Klemperer, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 375-394.
    25. Christopher Severen & Arthur A. van Benthem, 2022. "Formative Experiences and the Price of Gasoline," American Economic Journal: Applied Economics, American Economic Association, vol. 14(2), pages 256-284, April.
    26. Kiron Chatterjee, 2011. "Modelling the dynamics of bus use in a changing travel environment using panel data," Transportation, Springer, vol. 38(3), pages 487-509, May.
    27. Sofronis K. Clerides & Saul Lach & James R. Tybout, 1998. "Is Learning by Exporting Important? Micro-Dynamic Evidence from Colombia, Mexico, and Morocco," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 903-947.
    28. Amil Petrin, 2002. "Quantifying the Benefits of New Products: The Case of the Minivan," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 705-729, August.
    29. Eugenio J. Miravete & María J. Moral & Jeff Thurk, 2018. "Fuel taxation, emissions policy, and competitive advantage in the diffusion of European diesel automobiles," RAND Journal of Economics, RAND Corporation, vol. 49(3), pages 504-540, September.
    30. Paul Klemperer, 1987. "The Competitiveness of Markets with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 138-150, Spring.
    31. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    32. Kellogg, Ryan, 2018. "Gasoline price uncertainty and the design of fuel economy standards," Journal of Public Economics, Elsevier, vol. 160(C), pages 14-32.
    33. Martin Pesendorfer, 2002. "Retail Sales: A Study of Pricing Behavior in Supermarkets," The Journal of Business, University of Chicago Press, vol. 75(1), pages 33-66, January.
    34. Anderson, Soren T. & Kellogg, Ryan & Sallee, James M., 2013. "What do consumers believe about future gasoline prices?," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 383-403.
    35. Shanjun Li & Joshua Linn & Erich Muehlegger, 2014. "Gasoline Taxes and Consumer Behavior," American Economic Journal: Economic Policy, American Economic Association, vol. 6(4), pages 302-342, November.
    36. Meghan R. Busse & Christopher R. Knittel & Florian Zettelmeyer, 2013. "Are Consumers Myopic? Evidence from New and Used Car Purchases," American Economic Review, American Economic Association, vol. 103(1), pages 220-256, February.
    37. James D. Hamilton, 2009. "Understanding Crude Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 179-206.
    38. Hirobata, Yasuhiro & Kawakami, Shogo, 1990. "Modeling disaggregate behavioral modal switching models based on intention data," Transportation Research Part B: Methodological, Elsevier, vol. 24(1), pages 15-25, February.
    39. Ali Hortaçsu & Seyed Ali Madanizadeh & Steven L. Puller, 2017. "Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market," American Economic Journal: Economic Policy, American Economic Association, vol. 9(4), pages 192-226, November.
    40. Benjamin R. Handel, 2013. "Adverse Selection and Inertia in Health Insurance Markets: When Nudging Hurts," American Economic Review, American Economic Association, vol. 103(7), pages 2643-2682, December.
    41. Helena Perrone, 2017. "Demand for nondurable goods: a shortcut to estimating long-run price elasticities," RAND Journal of Economics, RAND Corporation, vol. 48(3), pages 856-873, August.
    42. Sorrell, Steve & Dimitropoulos, John & Sommerville, Matt, 2009. "Empirical estimates of the direct rebound effect: A review," Energy Policy, Elsevier, vol. 37(4), pages 1356-1371, April.
    43. Goulder, Lawrence H. & Hafstead, Marc A.C. & Kim, GyuRim & Long, Xianling, 2019. "Impacts of a carbon tax across US household income groups: What are the equity-efficiency trade-offs?," Journal of Public Economics, Elsevier, vol. 175(C), pages 44-64.
    44. Paul Klemperer, 1995. "Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(4), pages 515-539.
    45. Carol A. Dahl, 1986. "Gasoline Demand Survey," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 67-82.
    46. Zvi Eckstein & Kenneth I. Wolpin, 1989. "The Specification and Estimation of Dynamic Stochastic Discrete Choice Models: A Survey," Journal of Human Resources, University of Wisconsin Press, vol. 24(4), pages 562-598.
    47. Daniel J. Graham & Stephen Glaister, 2002. "The Demand for Automobile Fuel: A Survey of Elasticities," Journal of Transport Economics and Policy, University of Bath, vol. 36(1), pages 1-25, January.
    48. Soren T. Anderson & James M. Sallee, 2016. "Designing Policies to Make Cars Greener: A Review of the Literature," NBER Working Papers 22242, National Bureau of Economic Research, Inc.
    49. Laura Grigolon & Mathias Reynaert & Frank Verboven, 2018. "Consumer Valuation of Fuel Costs and Tax Policy: Evidence from the European Car Market," American Economic Journal: Economic Policy, American Economic Association, vol. 10(3), pages 193-225, August.
    50. Blanchard, Olivier J. & Summers, Lawrence H., 1987. "Hysteresis in unemployment," European Economic Review, Elsevier, vol. 31(1-2), pages 288-295.
    51. Taylor, Brian D & Miller, Douglas & Iseki, Hiroyuki & Fink, Camille, 2008. "Nature and/or nurture? Analyzing the determinants of transit ridership across US urbanized areas," University of California Transportation Center, Working Papers qt5w9045hh, University of California Transportation Center.
    52. Hausman, Jerry A & Newey, Whitney K, 1995. "Nonparametric Estimation of Exact Consumers Surplus and Deadweight Loss," Econometrica, Econometric Society, vol. 63(6), pages 1445-1476, November.
    53. Víctor Cantillo & Juan de Dios Ortúzar & Huw C. W. L. Williams, 2007. "Modeling Discrete Choices in the Presence of Inertia and Serial Correlation," Transportation Science, INFORMS, vol. 41(2), pages 195-205, May.
    54. Elisabeth Honka, 2014. "Quantifying search and switching costs in the US auto insurance industry," RAND Journal of Economics, RAND Corporation, vol. 45(4), pages 847-884, December.
    55. Horowitz, Joel, 1980. "A utility maximizing model of the demand for multi-destination non-work travel," Transportation Research Part B: Methodological, Elsevier, vol. 14(4), pages 369-386, December.
    56. Taylor, Brian D. & Fink, Camille N.Y., 2003. "The Factors Influencing Transit Ridership: A Review and Analysis of the Ridership Literature," University of California Transportation Center, Working Papers qt3xk9j8m2, University of California Transportation Center.
    57. Lutz Kilian, 2010. "Explaining Fluctuations in Gasoline Prices: A Joint Model of the Global Crude Oil Market and the U.S. Retail Gasoline Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 87-112.
    58. Oleg Melnikov, 2013. "Demand For Differentiated Durable Products: The Case Of The U.S. Computer Printer Market," Economic Inquiry, Western Economic Association International, vol. 51(2), pages 1277-1298, April.
    59. Christine Boizot & Jean-Marc Robin & Michael Visser, 2001. "The demand for food products," Post-Print hal-03416604, HAL.
    60. Justin Tyndall, 2017. "Waiting for the R train: Public transportation and employment," Urban Studies, Urban Studies Journal Limited, vol. 54(2), pages 520-537, February.
    61. Lin, C.-Y. Cynthia & Prince, Lea, 2013. "Gasoline price volatility and the elasticity of demand for gasoline," Energy Economics, Elsevier, vol. 38(C), pages 111-117.
    62. Innocenti, Alessandro & Lattarulo, Patrizia & Pazienza, Maria Grazia, 2013. "Car stickiness: Heuristics and biases in travel choice," Transport Policy, Elsevier, vol. 25(C), pages 158-168.
    63. Igal Hendel & Aviv Nevo, 2006. "Sales and Consumer Inventory," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 543-561, Autumn.
    64. Klemperer, Paul D, 1987. "Entry Deterrence in Markets with Consumer Switching Costs," Economic Journal, Royal Economic Society, vol. 97(388a), pages 99-117, Supplemen.
    65. Soren T. Anderson & James M. Sallee, 2016. "Designing Policies to Make Cars Greener," Annual Review of Resource Economics, Annual Reviews, vol. 8(1), pages 157-180, October.
    66. Fernando Luco, 2019. "Switching Costs and Competition in Retirement Investment," American Economic Journal: Microeconomics, American Economic Association, vol. 11(2), pages 26-54, May.
    67. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
    68. Mattson, Jeremy, 2008. "The Effects of Gasoline Prices on Bus Ridership for Different Types of Transit Systems," Journal of the Transportation Research Forum, Transportation Research Forum, vol. 47(3).
    69. Matthew Shum, 2004. "Does Advertising Overcome Brand Loyalty? Evidence from the Breakfast‐Cereals Market," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(2), pages 241-272, June.
    70. Rust, John, 1996. "Numerical dynamic programming in economics," Handbook of Computational Economics, in: H. M. Amman & D. A. Kendrick & J. Rust (ed.), Handbook of Computational Economics, edition 1, volume 1, chapter 14, pages 619-729, Elsevier.
    71. Storchmann, K. -H., 2001. "The impact of fuel taxes on public transport -- an empirical assessment for Germany," Transport Policy, Elsevier, vol. 8(1), pages 19-28, January.
    72. H. M. Amman & D. A. Kendrick & J. Rust (ed.), 1996. "Handbook of Computational Economics," Handbook of Computational Economics, Elsevier, edition 1, volume 1, number 1.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Matthias Beestermöller & Levke Jessen-Thiesen & Alexander Sandkamp & Alexander-Nikolai Sandkamp, 2023. "Striking Evidence: The Impact of Railway Strikes on Competition from Intercity Bus Services in Germany," CESifo Working Paper Series 10483, CESifo.
    2. Johannes Mauritzen, 2023. "With great power (prices) comes great tail pipe emissions? \\ A natural experiment of electricity prices and electric car adoption," Papers 2304.01709, arXiv.org.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Donna, Javier D., 2018. "Measuring Long-Run Price Elasticities in Urban Travel Demand," MPRA Paper 90059, University Library of Munich, Germany.
    2. Yufeng Huang, 2022. "Tied Goods and Consumer Switching Costs," Marketing Science, INFORMS, vol. 41(1), pages 93-114, January.
    3. Victor Aguirregabiria & Margaret Slade, 2017. "Empirical models of firms and industries," Canadian Journal of Economics, Canadian Economics Association, vol. 50(5), pages 1445-1488, December.
    4. Yeo, Jungwon & Miller, Daniel P., 2018. "Estimating switching costs with market share data: an application to Medicare Part D," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 459-501.
    5. Janssen, Aljoscha, 2020. "Switching Costs, Brand Premia and Behavioral Pricing in the Pharmaceutical Market," Working Paper Series 1317, Research Institute of Industrial Economics.
    6. Tiago Pires, 2016. "Costly search and consideration sets in storable goods markets," Quantitative Marketing and Economics (QME), Springer, vol. 14(3), pages 157-193, September.
    7. Takeshi Fukasawa, 2022. "The Biases in Applying Static Demand Models under Dynamic Demand," Discussion Paper Series DP2022-18, Research Institute for Economics & Business Administration, Kobe University, revised Jul 2022.
    8. Stefan Weiergraeber, 2022. "Network Effects And Switching Costs In The U.S. Wireless Industry," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(2), pages 601-630, May.
    9. Adam Copeland, 2014. "Intertemporal substitution and new car purchases," RAND Journal of Economics, RAND Corporation, vol. 45(3), pages 624-644, September.
    10. Gillingham, Kenneth & Munk-Nielsen, Anders, 2019. "A tale of two tails: Commuting and the fuel price response in driving," Journal of Urban Economics, Elsevier, vol. 109(C), pages 27-40.
    11. Kate Ho & Joseph Hogan & Fiona Scott Morton, 2017. "The impact of consumer inattention on insurer pricing in the Medicare Part D program," RAND Journal of Economics, RAND Corporation, vol. 48(4), pages 877-905, December.
    12. Jason Allen & Shaoteng Li, 2020. "Dynamic Competition in Negotiated Price Markets," Staff Working Papers 20-22, Bank of Canada.
    13. Ruochen Li, 2021. "Consumer stockpiling and demand elasticity biases: A theoretical note with applications," Manchester School, University of Manchester, vol. 89(6), pages 610-618, December.
    14. Ruiz-Aliseda, Francisco, 2016. "When do switching costs make markets more or less competitive?," International Journal of Industrial Organization, Elsevier, vol. 47(C), pages 121-151.
    15. Tatsuya Abe, 2022. "Welfare Effects of Fuel Tax and Feebate Policies in the Japanese New Car Market," ISER Discussion Paper 1183, Institute of Social and Economic Research, Osaka University.
    16. Février, Philippe & Wilner, Lionel, 2016. "Do consumers correctly expect price reductions? Testing dynamic behavior," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 25-40.
    17. Lu, Tingmingke, 2023. "Response of new car buyers to alternative energy policies: The role of vehicle use heterogeneity," Economic Modelling, Elsevier, vol. 120(C).
    18. Steven T. Berry & Philip A. Haile, 2021. "Foundations of Demand Estimation," Cowles Foundation Discussion Papers 2301, Cowles Foundation for Research in Economics, Yale University.
    19. Victor Aguirregabiria, 2023. "Dynamic demand for differentiated products with fixed-effects unobserved heterogeneity," The Econometrics Journal, Royal Economic Society, vol. 26(1), pages 1-25.
    20. Christopher R. Knittel & Konstantinos Metaxoglou, 2008. "Estimation of Random Coefficient Demand Models: Challenges, Difficulties and Warnings," NBER Working Papers 14080, National Bureau of Economic Research, Inc.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:randje:v:52:y:2021:i:4:p:945-994. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/randdus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.