Reference dependence in the demand for gasoline

Laurence Levin, Matthew Lewis and Frank A. Wolak

Journal of Economic Behavior & Organization, 2022, vol. 197, issue C, 561-578

Abstract: Consistent with the predictions of recent behavioral models of reference- or context-dependent preferences, we find that gasoline demand in the U.S. is up to three times more elastic when prices rise above their average over the previous year than when prices fall below this average. Reference-price effects vary substantially across cities with different demographic and commuting patterns. In cities where residents drive more, gasoline demand is less elastic but exhibits greater reference dependence. We also demonstrate that the asymmetric demand response generated by reference dependence can cause total gasoline consumption over a period of time to be lower when prices are more volatile than when prices exhibit the same average level but are more stable.

Keywords: Reference dependence; Gasoline demand; Asymmetric demand response; Reference price (search for similar items in EconPapers)
JEL-codes: D9 Q41 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:197:y:2022:i:c:p:561-578

DOI: 10.1016/j.jebo.2022.03.003

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