Demand for Gasoline is More Price-inelastic Than Commonly Thought

Michael Giberson

A working paper from the UC-Berkeley Department of Agricultural and Resource Economics says that the demand for gasoline is more price-inelastic than typically thought. Here is the abstract, which points to publication selection bias as the culprit:

One of the most frequently examined statistical relationships in energy economics has been the price elasticity of gasoline demand. We conduct a quantitative survey of the estimates of elasticity reported for various countries around the world. Our meta-analysis indicates that the literature suffers from publication selection bias: insignificant or positive estimates of the price elasticity are rarely reported, although implausibly large negative estimates are reported regularly. In consequence, the aver- age published estimates of both short- and long-run elasticities are exaggerated twofold. Using mixed effects multilevel meta-regression, we show that after correction for publication bias the average long-run elasticity reaches -0:31 and the average short-run elasticity only -0.09.

The authors are Tomas Havranek, Zuzana Irsova, and Karel Janda.

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