Heterogeneity in the response to gasoline prices: Evidence from Pennsylvania and implications for the rebound effect

Abstract

The consumer response to changing gasoline prices has long interested economists and policymakers, for it has important implications for the effects of gasoline taxation and vehicle energy efficiency policies. This study examines both the elasticity of driving with respect to changing gasoline prices and heterogeneity in this elasticity by geography, the fuel economy of the vehicle, and the age of the vehicle. We use detailed annual vehiclelevel emissions inspection test data from Pennsylvania that include odometer readings, inspection zip codes, and extensive vehicle characteristics. We estimate a short-run gasoline price elasticity of driving demand of-0.10, and find substantial heterogeneity in this responsiveness. The elasticity is largely driven by low fuel economy vehicles, as well as vehicles between 3 and 7 years old. Our findings help reconcile some of the recent literature and provide guidance on the magnitude of the direct rebound effect from light duty vehicle energy efficiency policies. JEL classification codes: H23, Q38, Q41.

Heterogeneity in price responsiveness for residential space heating in Germany

“…Notably, additional income raises expenditures slightly less for households that already spend comparatively high amounts on space heating. Similarly to previous works that found the same result for driving (Wadud et al, 2010;Gillingham, 2014), this might be due to the fact that those households already achieve their preferred level of thermal comfort. Subsequently, they do not increase their consumption as much when their income increases, compared to households that spend less on space heating in the first place.…”

“…While the authors also interact fuel prices with different demographic variables, they do not find any of the interaction terms to be statistically significant, contradicting the findings from Wadud et al (2010). Gillingham (2014) and Gillingham et al (2015) derive estimates for vehicle-miles-traveled (VMT) in private transport with respect to gasoline prices in the US. The authors explore heterogeneity in demand response by using quantile regression, splitting the sample into subgroups, interacting the gasoline price variable with demographic factors, and conducting k-means clustering.…”

“…The commonly observed principal-agent problem (see e.g. Allcott and Greenstone 2012; Davis 2012; Gillingham et al 2012;Levinson and Niemann 2004) for heating efficiency between landlords and tenants would suggest that renters spend more on heating than homeowners. 13 This does not appear to be the case in our data, which is in line with Meier and Rehdanz (2010).…”

“…This can be explained by two factors: firstly, richer households may have more discretionary driving that can easily be avoided. Secondly, wealthy households are more likely to own multiple vehicles, which allows them to switch to the more fuel efficient one when prices increase (Gillingham, 2014). In space heating, these two phenomena seem less relevant.…”

Easing the traffic: The effects of Indonesia’s fuel subsidy reforms on toll-road travel

“…Bento et al (2013) estimated a weekly gasoline price elasticity of highway traffic flows of -0.05 for roads without carpool lanes in Los Angeles. Gillingham (2014) and Gillingham et al (2015) used vehicle-level data for California and Pennsylvania, reporting gasoline price elasticities of VKT of -0.2 and -0.1 over multi-year and same-year time horizons, respectively. Huang and Burris (2015) found an average same-month gasoline price elasticity of -0.06 for trips on toll roads, concluding that toll-road travel might be less sensitive to changes in fuel prices than is travel on non-toll roads.…”