What do one hundred million transactions tell us about demand elasticity of gasoline?

Rahmati, Mohammad Hossein and Tavakoli, Amirhossein and Vesal, Mohammad (2019): What do one hundred million transactions tell us about demand elasticity of gasoline?

Abstract

The price elasticity of gasoline demand is a key parameter in evaluation of various policy options. However, most of the literature uses aggregate data to identify this elasticity. Temporal and spatial aggregation make elasticity estimates unreliable. We employ a unique dataset of all gasoline transactions in Iran during a four-month period around an unexpected exogenous price change to identify price elasticity. After controlling for date and individual fixed effects we estimate a robust significant price elasticity of -0.077. Aggregation of the same data by week, month, and city yields an estimate of -0.3 indicating a significant bias in earlier studies. We also identify a significant withholding behavior by consumers in response to anticipated price changes.

• Item Type: MPRA Paper
• Language: English
• Keywords: Gasoline demand elasticity, Transaction-level data, Withholding behavior, Subsidy
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C55 - Large Data Sets: Modeling and Analysis; D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q31 - Demand and Supply ; Prices

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