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The Demand for Gasoline: Evidence from Household Survey Data

  • Dongfeng Chang

    (University of Calgary)

  • Apostolos Serletis

    (University of Calgary)

SUMMARY In this paper we investigate the demand for gasoline in Canada using recent annual expenditure data from the Canadian Survey of Household Spending, over a 13‐year period from 1997 to 2009, on three expenditure categories in the transportation sector: gasoline, local transportation, and intercity transportation. In doing so, we use three of the most widely used locally flexible functional forms, the Almost Ideal Demand System (AIDS) of Deaton and Muellbauer (1980), the quadratic AIDS (QUAIDS) of Banks et al. (1997)—an extension of the simple AIDS model that can generate quadratic Engel curves—and the Minflex Laurent model of Barnett (1983), which can also generate quadratic Engel curves. We pay explicit attention to economic regularity, argue that unless regularity is attained by luck, flexible functional forms should always be estimated subject to regularity as suggested by Barnett (2002), and impose local curvature to produce inference consistent with neoclassical microeconomic theory. Our findings indicate that the curvature‐constrained Minflex Laurent model is the only model that is able to provide theoretically consistent estimates of the Canadian demand for gasoline. Our estimates show that the own‐price elasticity for gasoline demand in Canada is between − 0.738 and − 0.570 —less elastic than previously reported in the literature. Copyright © 2013 John Wiley & Sons, Ltd.

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Paper provided by Department of Economics, University of Calgary in its series Working Papers with number 2012-10.

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Date of creation: 31 Mar 2014
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Handle: RePEc:clg:wpaper:2012-10
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  11. Espey, Molly, 1998. "Gasoline demand revisited: an international meta-analysis of elasticities," Energy Economics, Elsevier, vol. 20(3), pages 273-295, June.
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  17. Ghalwash, Tarek, 2006. "Demand for Environmental Quality: An Empirical Analysis of Consumer Behavior in Sweden," Umeå Economic Studies 676, Umeå University, Department of Economics.
  18. John Elder & Apostolos Serletis, 2010. "Oil Price Uncertainty," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(6), pages 1137-1159, 09.
  19. Pindyck, Robert S, 1979. "Interfuel Substitution and the Industrial Demand for Energy: An International Comparison," The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 169-79, May.
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  24. Chang, Dongfeng & Serletis, Apostolos, 2012. "Imposing local curvature in the QUAIDS," Economics Letters, Elsevier, vol. 115(1), pages 41-43.
  25. Barnett, William A. & Geweke, John & Wolfe, Michael, 1991. "Seminonparametric Bayesian estimation of the asymptotically ideal production model," Journal of Econometrics, Elsevier, vol. 49(1-2), pages 5-50.
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