Open AccessMeasuring the price responsiveness of gasoline demand: Economic shape restrictions and nonparametric demand estimation
Author(s) -
Blundell Richard,
Horowitz Joel L.,
Parey Matthias
Publication year - 2012
Publication title -
quantitative economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.062
H-Index - 27
eISSN - 1759-7331
pISSN - 1759-7323
DOI - 10.3982/qe91
Subject(s) - nonparametric statistics , economics , estimation , gasoline , econometrics , market demand schedule , on demand , demand curve , microeconomics , commerce , chemistry , management , organic chemistry
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.