The article Identifying the elasticity of driving: Evidence from a gasoline price shock inResea
California by Kenneth Gillingham explores how consumers normally respond to fluctuations in
gasoline prices. The study focuses on new cars registered within California between 2001-2003
that later received smog checks between 2005-2009; a period marked by stable economic growth
coupled with a rapid rise in gasoline prices. The smog checks assist the researcher identity
vehicles during their first six years a period when they are driven the most. The empirical results
highlight significant heterogeneous elasticity of -0.22 across demographics, buyer types and
geography which underscores the effectiveness of gasoline price policies on reducing greenhouse
prices.
The main assumptions of the study include the idea that every driver is a price taker with
regards to gasoline prices. The researcher also assumes that elasticity is not affected by
consumers’ forecasts of the future rise of gasoline prices (Gillingham 18). The key findings of
the research indicate that policies that lead to an increase in gasoline prices can lead to consumer
behavior that reduces greenhouse gas emissions. Further, contrary to previous research, the study
highlights that whereas vehicle utilization is inelastic at -0.22, customers respond to fuel
economy (Gillingham 20). The elasticity to fuel economy is heterogeneous across incomes.
Quantifying the heterogeneity is vital in assessing the consequences of policies which lead to
Surname 2
higher gasoline prices. Thus, the heterogeneous elasticity highlighted assume that fuel buyers are
price takers for gasoline prices.
In conclusion, the study’s empirical results highlight significant heterogeneous elasticity
across demographics, buyer types and geography, thereby, highlighting the importance of
gasoline price policies on reducing greenhouse. It explores how consumers normally respond to
varying gasoline prices. Overall, the study indicates that quantifying the heterogeneity can help
alleviate greenhouse gas emissions through policies that lead to higher gasoline prices.
Surname 3
Works Cited
Gillingham, Kenneth. "Identifying the elasticity of driving: Evidence from a gasoline price
shock in California." Regional Science