Household adjustment to gasoline price change: an analysis using 9 years of US survey data

This paper examines the dynamics and composition of household adjustment to changes in the real price of gasoline using a panel of US households. By d ecomposing the demand for gasoline into the demand for vehicle miles travel ed and the demand for household composite miles per gallon, we are able to add rich detail to the description of how households respond to gasoline pr ice changes. While obtaining total price elasticity estimates well within t he range found in the literature, we find that consumers initially respond to a price rise with a much larger decrease in consumption than would be in dicated by the total elasticity. In addition, households respond to price c hanges by adjusting vehicle miles traveled more than composite miles per ga llon in the year after a price change. (C) 1999 Elsevier Science B.V. All r ights reserved.