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Estimating Price Elasticity of Gasoline Demand Using Transaction-Level Data

Rahmani, Pegah | 2020

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 52920 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Vesal, Mohammad; Rahmati, Mohammad Hossein
  7. Abstract:
  8. One of the most widely discussed parameters in energy economics is the price elasticity of gasoline demand due to its substantial implications for taxation, energy efficiency, and environmental policies. This paper aims to estimate the price elasticity of gasoline demand using a novel source of data. The data is from Iran, in the early months of 2014. Vehicles get a quota of 60 liters per month as subsidized gasoline at a lower price. The quota is transferable to the next months if it has not been consumed. All of the information about each pumping transaction is gathered in a centralized database, assigning a unique fuel card to each vehicle. Consequently, the structure of the market provides a kink in the budget constraint of households because of the price change at a specific quantity of quota. The decision to withhold consuming over the quota, expecting the lower price of the next month’s quota, results in creating an excess mass in the consumption distribution at the kink point. Bunching method that was introduced by Saez (2010) and Chetty et al. (2011) helps to relate the excess mass to the price elasticity parameter of our structural model. The results are significant and vary from -0.7 to -0.8. Dynamic extension of the model provides a potential mechanism to estimate more parameters and the elasticity of intertemporal substitution is estimated -0.41
  9. Keywords:
  10. Price Elasticity ; Demand Estimation ; Gasoline Demand ; Bunching Method ; Kink in the Budget Constraint ; Demand Price Elasticity

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