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Rational habits in gasoline demand

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  • Scott, K. Rebecca

Abstract

The dynamics of demand for energy goods such as gasoline are complicated by investment decisions and behavioral habits. Both types of complication can be captured by a habits model, in which past consumption enters into an agent's current utility function. If the agent is forward-looking, or ‘rational’, then habits imply his consumption of the habit-forming good will be sensitive to his expectation of future market conditions, in particular future prices. This sensitivity implies, in turn, that traditional measures of price elasticity will underproject consumers' responsiveness to policy interventions.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 34 (2012)
Issue (Month): 5 ()
Pages: 1713-1723

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Handle: RePEc:eee:eneeco:v:34:y:2012:i:5:p:1713-1723

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Web page: http://www.elsevier.com/locate/eneco

Related research

Keywords: Gasoline demand; Rational habits; Price elasticity;

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References

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Citations

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Cited by:
  1. Shanjun Li & Joshua Linn & Erich Muehlegger, 2012. "Gasoline Taxes and Consumer Behavior," NBER Working Papers 17891, National Bureau of Economic Research, Inc.
  2. John Muellbauer, 2013. "Conditional Eurobonds and the Eurozone Sovereign Debt Crisis," Economics Series Working Papers 681, University of Oxford, Department of Economics.
  3. Scott, K. Rebecca, 2013. "Demand and Price Uncertainty: Rational Habits in International Gasoline Demand," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt25q4w08n, Department of Agricultural & Resource Economics, UC Berkeley.
  4. Baranzini, Andrea & Weber, Sylvain, 2013. "Elasticities of gasoline demand in Switzerland," Energy Policy, Elsevier, vol. 63(C), pages 674-680.
  5. Marius Ley & Tobias Stucki & Martin Wörter, 2013. "The Impact of Energy Prices on Green Innovation," KOF Working papers 13-340, KOF Swiss Economic Institute, ETH Zurich.

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