Measuring the price responsiveness of gasoline demand: Economic shape restrictions and nonparametric demand estimation

Richard Blundell*, Joel L. Horowitz, Matthias Parey

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

36 Scopus citations

Abstract

This paper develops a new method for estimating a demand function and the welfare consequences of price changes. The method is applied to gasoline demand in the United States and is applicable to other goods. The method uses shape restrictions derived from economic theory to improve the precision of a nonparametric estimate of the demand function. Using data from the U.S. National Household Travel Survey, we show that the restrictions are consistent with the data on gasoline demand and remove the anomalous behavior of a standard nonparametric estimator. Our approach provides new insights about the price responsiveness of gasoline demand and the way responses vary across the income distribution. We find that price responses vary non-monotonically with income. In particular, we find that low- and high-income consumers are less responsive to changes in gasoline prices than are middle-income consumers. We find similar results using comparable data from Canada.

Original languageEnglish (US)
Pages (from-to)29-51
Number of pages23
JournalQuantitative Economics
Volume3
Issue number1
DOIs
StatePublished - Mar 2012

Keywords

  • Consumer demand
  • Deadweight loss
  • Gasoline demand
  • Nonparametric estimation

ASJC Scopus subject areas

  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Measuring the price responsiveness of gasoline demand: Economic shape restrictions and nonparametric demand estimation'. Together they form a unique fingerprint.

Cite this