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

Martijn Brons, Peter Nijkamp, Eric Pels, Piet Rietveld

Research output: Working paperProfessional

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.
Original languageEnglish
Place of PublicationAmsterdam
PublisherTinbergen Instituut
Publication statusPublished - 2006

Publication series

NameDiscussion paper TI
No.06-106/3

Fingerprint

Gasoline demand
Price elasticity
Car
Meta-analysis
Fuel efficiency
Ownership
Elasticity
Empirical results
Time horizon
Fuel demand
Novelty
Automobile
Gasoline prices
Standard error
Sample size

Cite this

Brons, M., Nijkamp, P., Pels, E., & Rietveld, P. (2006). A Meta-analysis of the Price Elasticity of Gasoline Demand. A System of Equations Approach. (Discussion paper TI; No. 06-106/3). Amsterdam: Tinbergen Instituut.
Brons, Martijn ; Nijkamp, Peter ; Pels, Eric ; Rietveld, Piet. / A Meta-analysis of the Price Elasticity of Gasoline Demand. A System of Equations Approach. Amsterdam : Tinbergen Instituut, 2006. (Discussion paper TI; 06-106/3).
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Brons, M, Nijkamp, P, Pels, E & Rietveld, P 2006 'A Meta-analysis of the Price Elasticity of Gasoline Demand. A System of Equations Approach' Discussion paper TI, no. 06-106/3, Tinbergen Instituut, Amsterdam.

A Meta-analysis of the Price Elasticity of Gasoline Demand. A System of Equations Approach. / Brons, Martijn; Nijkamp, Peter; Pels, Eric; Rietveld, Piet.

Amsterdam : Tinbergen Instituut, 2006. (Discussion paper TI; No. 06-106/3).

Research output: Working paperProfessional

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AB - 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.

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Brons M, Nijkamp P, Pels E, Rietveld P. A Meta-analysis of the Price Elasticity of Gasoline Demand. A System of Equations Approach. Amsterdam: Tinbergen Instituut. 2006. (Discussion paper TI; 06-106/3).