Working Paper: NBER ID: w22937
Authors: Kenneth Gillingham; Anders Munk Nielsen
Abstract: The consumer price responsiveness of driving demand is central to the welfare consequences of fuel price changes. This study uses rich data covering the entire population of vehicles and consumers in Denmark to find a medium-run price elasticity of driving of -0.30. We uncover an important feature of driving demand: two small groups of much more responsive households that make up the lower and upper tails of the work distance distribution. The first group lives close to work in urban areas. The second group lives outside of major urban areas and has the longest commutes. Access to public transport appears to be the force behind the existence of the tails, enabling the switch away from driving. We find that a fuel price increase of 1 DKK/liter implies an average deadweight loss of 0.66 DKK/liter, but there is considerable heterogeneity and the tails bear a larger share of the loss.
Keywords: No keywords provided
JEL Codes: Q4; Q5; R2; R4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Access to Public Transport (L91) | Increased Responsiveness to Fuel Price Changes (L97) |
| Switching Costs (D23) | Elasticity of Driving (R48) |
| Most Responsive Drivers (R48) | Total Reduction in Driving (R48) |
| Fuel Price Increase (Q31) | Driving Demand Decrease (J23) |
| Fuel Price Increase (Q31) | Driving Demand Decrease for Short Commute Households (R22) |
| Fuel Price Increase (Q31) | Driving Demand Decrease for Long Commute Households (R22) |
| Fuel Price Increase (Q31) | Deadweight Loss Increase (H21) |