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 decomposing the demand for gasoline into the demand for vehicle miles traveled 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 price changes. While obtaining total price elasticity estimates well within the 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 indicated by the total elasticity. In addition, households respond to price changes by adjusting vehicle miles traveled more than composite miles per gallon in the year after a price change. (C) 1999 Elsevier Science B.V. All rights reserved.