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What do one hundred million transactions tell us about demand elasticity of gasoline?

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  • Rahmati, Mohammad Hossein
  • Tavakoli, Amirhossein
  • Vesal, Mohammad

Abstract

The price elasticity of gasoline demand is a key parameter in evaluation of various policy options. However, most of the literature uses aggregate data to identify this elasticity. Temporal and spatial aggregation make elasticity estimates unreliable. We employ a unique dataset of all gasoline transactions in Iran during a four-month period around an unexpected exogenous price change to identify price elasticity. After controlling for date and individual fixed effects we estimate a robust significant price elasticity of -0.077. Aggregation of the same data by week, month, and city yields an estimate of -0.3 indicating a significant bias in earlier studies. We also identify a significant withholding behavior by consumers in response to anticipated price changes.

Suggested Citation

  • Rahmati, Mohammad Hossein & Tavakoli, Amirhossein & Vesal, Mohammad, 2019. "What do one hundred million transactions tell us about demand elasticity of gasoline?," MPRA Paper 97858, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:97858
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    More about this item

    Keywords

    Gasoline demand elasticity; Transaction-level data; Withholding behavior; Subsidy;
    All these keywords.

    JEL classification:

    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices

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