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The Price Elasticity for Gasoline Revisited

Rolando F. Pelaez

Year: 1981
Volume: Volume 2
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol2-No4-6
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Abstract:
Energy conservation has been a major goal of three administrations, yet disagreement about how to achieve it has hampered conservation efforts. Advocates of nonmarket rationing claim that gasoline demand is highly inelastic, and hence that higher prices would result mainly in substantial income redistribution. In contrast, economists typically point to the price mechanism as the best method for promoting conservation. Clearly the issue depends to a great degree on the price elasticity of demand for energy. Since nearly one-half of the petroleum consumed in the United States is used as motor fuel, this note focuses on the price elasticity for gasoline.



U.S. Gasoline Demand: What Next?

Badi H. Baltagi and James M. Griffin

Year: 1984
Volume: Volume 5
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No1-8
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Abstract:
Predicting the demand for motor gasoline over the last ten years has proven a most frustrating experience. Up until 1973, industry analysts felt considerable assurance in applying historical growth rates that averaged approximately 5 percent per year. Who in 1973 would have predicted that gasoline consumption in 1981 would fall below 1973 levels? For example, in 1973, Shell Oil Company predicted annual growth of 4.9 percent per year. Their forecasted value for the year 1981 exceeded the actual level by 42.7 percent (Shell, 1973). Unfortunately, errors of this magnitude are not as benign as predicting the point spread in a pro football game. To the contrary, both private and public policy decisions depend on the accuracy of such forecasts. Because of the importance of gasoline as the major refinery product, refinery expansion plans and retail marketing strategies are conditioned on such forecasts. Similarly, public policy decisions regarding auto efficiency standards, auto pollution controls, and oil import policy depend on gasoline demand forecasts. Current forecasts tend to be extremely pessimistic with respect to gasoline demand in the 1980s. Wharton Econometric Forecasting Associates predicts a 14.7 percent decline in motor-vehicle fuel demand over the decade of the 1980s; Exxon's Energy Outlook predicts a 15.6 percent decline over the decade. Is such pessimism warranted? Are there key assumptions, which if changed, could produce a substantially different picture?



Gasoline Demand Survey

Carol A. Dahl

Year: 1986
Volume: Volume 7
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No1-5
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Abstract:
Gasoline demand, which represents almost a quarter of world petroleum consumption, has been the focus of a considerable amount of econometric work since the 1973 oil embargo. However, researchers and policymakers when considering this work are confronted with a bewildering array of elasticities and results that come from a variety of data sets and model types. This survey stratifies these elasticities for statistical analysis and development of summary elasticities, identifies basic issues, and illustrates a strategy for summarizing studies that should be useful to policymakers and researchers in any area of applied work. Because space prohibits discussing all of this work, this survey is limited to those studies that have estimates for gasoline demand, vehicle miles traveled, and miles per gallon.



Energy for Transport in Developing Countries

Joy Dunkerley and Irving Hoch

Year: 1987
Volume: Volume 8
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol8-No3-3
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Abstract:
Transportation is the major market for liquid fuels in many developing countries, accounting on average for one half of total consumption. Unlike the other end-use sectors, possibilities for fuel switching in transport are limited, at least for the time being. Given the existing stock of transport equipment, virtually the entire increase in consumption of transport fuels for the next 15 years or so will involve petroleum products.



Imperfect Price-Reversibility of U.S. Gasoline Demand: Asymmetric Responses to Price Increases and Declines

Dermot Gately

Year: 1992
Volume: Volume 13
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No4-10
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Abstract:
This paper describes a framework for analyzing the imperfect pricereversibility ("hysteresis") of oil demand. The oil demand reductions following the oil price increases of the 1970s will not be completely reversed by the price cuts of the 1980s, nor is it necessarily true that these partial demand reversals themselves will be reversed exactly by future price increases. We decompose price into three monotonic series: price increases to maximum historic levels, price cuts, and price recoveries (increases below historic highs). We would expect that the response to price cuts wouldbe no greater than to price recoveries, which in turn would be no greater than for increases in maximum historic price. For evidence of imperfect price-reversibility, we test econometrically the following U.S. data: vehicle miles per driver,the fuel efficiency of the automobile fleet, and gasoline demand per driver. In each case, our econometric results allow us to reject the hypothesis of perfect price-reversibility. The data show smaller response to price cuts than to priceincreases.This has dramatic implications for projections of gasoline and oil demand, especially under low-price assumptions.



Gasoline Demand in Developing Asian Countries

Robert McRae

Year: 1994
Volume: Volume15
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No1-9
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Abstract:
This paper presents econometric estimates of motor gasoline demand in eleven developing countries of Asia. The price and GDP per capita elasticities are estimated for each country separately, and for several pooled combinations of the countries. The estimated elasticities for the Asian countries are compared with those of the OECD countries. Generally, one finds that the OECD countries have GDP elasticities that are smaller, and price elasticities that are larger (in absolute value). The price elasticities for the low-income Asian countries are more inelastic than for the middle-income Asian countries, and the GDP elasticities are generally more elastic.



Explaining the Variation in Elasticity Estimates of Gasoline Demand in the United States: A Meta-Analysis

Molly Espey

Year: 1996
Volume: Volume17
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol17-No3-4
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Abstract:
Meta-analysis is used to determine if there are factors that systematically affect price and income elasticity estimates in studies of gasoline demand in the United States. Elasticity estimates from previous studies are used as the dependent variable with data characteristics, model structure, and estimation technique as the independent variables. Included among the explanatory variables a rejunctional form, lag structure, time span, and national setting (U.S. versus the U.S. pooled with other countries). Inclusion of vehicle ownership in gasoline demand studies is found to result in lower estimates of income elasticity, data sets which pool U.S. and foreign data result in larger (absolute) estimates of both price and income elasticity, and the small difference between static and dynamic models suggests that lagged responses to price or income changes are relatively short. This study also found that elasticity estimates appear relatively robust across estimation techniques.



Demand for Ground Transportation Fuel and Pricing Policy in Asian Tigers: A Comparative Study of Korea and Taiwan

Sara Banaszak, Ujjayant Chakravorty and PingSun Leung

Year: 1999
Volume: Volume20
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol20-No2-6
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Abstract:
This paper examines the demand for gasoline and diesel in the ground transportation sectors of South Korea and Taiwan, comparing the effects of their different pricing policies and stages of economic growth. To account for substitutability between the two fuels, the model proposed here uses a system of equations estimated simultaneously with time-series data from 1973-1992. Results yield demand elasticities that confirm previous research showing that oil product demand is generally price inelastic, while income elasticities (reflecting a longer period of economic growth than previous studies in the Asian region) are lower than those previously reported. The estimated demand functions are then used to generate forecasts for both countries and, in particular, for an assumed reduction in a 180% tax on gasoline in Korea. Forecasted increases in demand by the year 2010 range from 40 to 180%, while the tax analysis suggests that Korea's pricing policy has reduced total demand and promoted the use of diesel over gasoline.



Vehicle Choice in an Aging Population: Some Insights from a Stated Preference Survey for California

Chris Kavalec

Year: 1999
Volume: Volume20
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol20-No3-5
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Abstract:
This paper investigates the potential effects that an aging "baby boomer" generation will have on gasoline use through their vehicle choice decisions. The study uses stated preference data for both conventional and alternative fuel vehicles, and measures the impact of age of survey respondent on the perceived value of vehicle characteristics such as fuel economy, performance, and body style (e.g., car vs. truck). The results suggest the possibility that average fleet fuel economy may improve in the next few years, if survey preferences translate to actual purchase behavior. No clear implications can be drawn regarding the demand for alternative fuel vehicles.



Refining the evidence: British Columbia’s carbon tax and household gasoline consumption

Chad Lawley and Vincent Thivierge

Year: 2018
Volume: Volume 39
Number: Number 2
DOI: 10.5547/01956574.39.2.claw
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Abstract:
The impact of carbon prices on consumer behavior is a central element in current policy debates dealing with mitigation of greenhouse gas emissions. We examine the impact of British Columbia's carbon tax on private automobile gasoline use. We control for several factors that influenced gasoline demand during our study period, including local public transit improvements and increased cross-border shopping. Our results suggest that a 5 cent per litre carbon tax reduced gasoline consumption by 8%. We find that households residing in Vancouver and other cities responded to the carbon tax, whereas households in small towns and rural areas did not respond. We perform several sensitivity analyses. Even our most conservative lower bound estimate suggests that a 5 cent per litre carbon tax reduced gasoline consumption by 5%.




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