High Frequency Evidence on the Demand for Gasoline

Daily city-level expenditures and prices are used to estimate the price responsiveness of gasoline demand in the U.S. Using a frequency of purchase model that explicitly acknowledges the distinction between gasoline demand and gasoline expenditures, we consistently find the price elasticity of demand to be an order of magnitude larger than estimates from recent studies using more aggregated data. We demonstrate directly that higher levels of spatial and temporal aggregation generate increasingly inelastic demand estimates, and then perform a decomposition to examine the relative importance of several different sources of bias likely to arise in more aggregated studies. ∗VISA Decision Sciences, 901 Metro Center Boulevard, Mail Stop: M3-2B Foster City, CA 94404-2775, [email protected] †John E. Walker Department of Economics, Clemson University, 228 Sirrine Hall, Box 341309, Clemson, SC 29634-1309, [email protected] ‡Program on Energy and Sustainable Development and Department of Economics, Stanford University, Stanford, CA 94305-6072, [email protected].