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- Title
Estimating the price elasticity of gasoline demand in correlated random coefficient models with endogeneity.
- Authors
Bates, Michael; Kim, Seolah
- Abstract
Summary: We propose a per‐cluster instrumental variable (PCIV) approach for estimating linear correlated random coefficient models in the presence of contemporaneous endogeneity and two‐way fixed effects. This approach estimates heterogeneous effects and aggregates them to population averages. We demonstrate consistency, showing robustness over standard estimators, and provide analytic standard errors for robust inference. In Monte Carlo simulation, PCIV performs relatively well in finite samples in either dimension. We apply PCIV in estimating the price elasticity of gasoline demand using state fuel taxes as instrumental variables. We find significant elasticity heterogeneity and more elastic gasoline demand on average than with standard estimators.
- Subjects
ELASTICITY (Economics); GASOLINE taxes; GAS prices; MONTE Carlo method; STATE taxation
- Publication
Journal of Applied Econometrics, 2024, Vol 39, Issue 4, p679
- ISSN
0883-7252
- Publication type
Article
- DOI
10.1002/jae.3042