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A Meta-analysis of the Price Elasticity of Gasoline Demand. A System of Equations Approach

Author

Listed:
  • Martijn Brons

    (Vrije Universiteit Amsterdam)

  • Peter Nijkamp

    (Vrije Universiteit Amsterdam)

  • Eric Pels

    (Vrije Universiteit Amsterdam)

  • Piet Rietveld

    (Vrije Universiteit Amsterdam)

Abstract

Automobile gasoline demand can be expressed as a multiplicative function of fuel efficiency, mileage per car and car ownership. This implies a linear relationship between the price elasticity of total fuel demand and the price elasticities of fuel efficiency, mileage per car and car ownership. In this meta-analytical study we aim to investigate and explain the variation in empirical estimates of the price elasticity of gasoline demand. A methodological novelty is that we use the linear relationship between the elasticities to develop a meta-analytical estimation approach based on a system of equations. This approach enables us to combine observations of different elasticities and thus increase our sample size. Furthermore it allows for a more detailed interpretation of our meta-regression results. The empirical results of the study demonstrate that the system of equations approach leads to more precise results (i.e., lower standard errors) than a standard! meta-analytical approach. We find that, with a mean price elasticity of -0.53, the demand for gasoline is not very price sensitive. The impact a change in the gasoline price on demand is mainly driven by a response in fuel efficiency and car ownership and to a lesser degree by changes in the mileage per car. Furthermore, we find that study characteristics relating to the geographic area studied, the year of the study, the type of data used, the time horizon and the functional specification of the demand equation have a significant impact on the estimated value of the price elasticity of gasoline demand. See 'A meta-analysis of the price elasticity of gasoline demand. A SUR approach' in Energy Economics (2008). Volume 30, pages 2105-2122.

Suggested Citation

  • Martijn Brons & Peter Nijkamp & Eric Pels & Piet Rietveld, 2006. "A Meta-analysis of the Price Elasticity of Gasoline Demand. A System of Equations Approach," Tinbergen Institute Discussion Papers 06-106/3, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20060106
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    References listed on IDEAS

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    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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