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Measuring the price responsiveness of gasoline demand: economic shape restrictions and nonparametric demand estimation

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  • Richard Blundell

    ()
    (Institute for Fiscal Studies and University College London)

  • Joel Horowitz

    ()
    (Institute for Fiscal Studies and Northwestern University)

  • Matthias Parey

    ()
    (Institute for Fiscal Studies)

Abstract

This paper develops a new method for estimating a demand function and the welfare consequences of price changes. The method is applied to gasoline demand in the U.S. and is applicable to other goods. The method uses shape restrictions derived from economic theory to improve the precision of a nonparametric estimate of the demand function. Using data from the U.S. National Household Travel Survey, we show that the restrictions are consistent with the data on gasoline demand and remove the anomalous behavior of a standard nonparametric estimator. Our approach provides new insights about the price responsiveness of gasoline demand and the way responses vary across the income distribution. We find that price responses vary nonmonotonically with income. In particular, we find that low- and high-income consumers are less responsive to changes in gasoline prices than are middle-income consumers. We find similar results using comparable data from Canada.

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Bibliographic Info

Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number CWP24/11.

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Date of creation: Jun 2011
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Handle: RePEc:ifs:cemmap:24/11

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Cited by:
  1. Jerry Hausman & Whitney Newey, 2013. "Individual heterogeneity and average welfare," CeMMAP working papers CWP34/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  2. Chang, Dongfeng & Serletis, Apostolos, 2012. "Imposing local curvature in the QUAIDS," Economics Letters, Elsevier, vol. 115(1), pages 41-43.
  3. Pierre-André Chiappori & Costas Meghir, 2014. "Intrahousehold Inequality," NBER Working Papers 20191, National Bureau of Economic Research, Inc.
  4. Stefan Hoderlein, 2009. "How many consumers are rational?," CeMMAP working papers CWP32/09, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  5. Richard Blundell & Joel Horowitz & Matthias Parey, 2013. "Nonparametric estimation of a heterogeneous demand function under the Slutsky inequality restriction," CeMMAP working papers CWP54/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  6. Fengler, Matthias & Hin, Lin-Yee, 2011. "Semi-nonparametric estimation of the call price surface under strike and time-to-expiry no-arbitrage constraints," Economics Working Paper Series 1136, University of St. Gallen, School of Economics and Political Science, revised May 2013.
  7. repec:clg:wpaper:2012-10 is not listed on IDEAS
  8. Debopam Bhattacharya, 2013. "Nonparametric Welfare Analysis for Discrete Choice," Economics Series Working Papers 669, University of Oxford, Department of Economics.

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