Econometric analysis of the demand for gasoline at the state level

Abstract

An investigation into factors influencing levels of highway gasoline use per household and per vehicle at the state level shows use per vehicle ranged from 588.7 gal in Pennsylvania to 900.0 gal in Arkansas in 1975. Household use in the same year was lowest in New York (864.5 gal) and highest in Wyoming (2222.0 gal). Determinants of the demand for highway gasoline were identified based on economic theory of the demand for travel. Exploratory theoretical analyses led to the conclusion that important state-specific influences were not being adequately accounted for by the available time series (1966 to 1975) of cross-sectional (state) variables. These state effects appeared to be strongly correlated with income. Two time-series cross-sectional (TSCS) regression techniques were employed, producing reasonable and consistent models. Elasticity estimates were slightly higher than estimates using earlier data. In order to analyze the determinants of differences in state gasoline use rates, a two-phase modeling approach was used which first estimates a demand equation utilizing key socio-economic variables. The TSCS technique used to estimate the equation produces quantitative estimates of state-specific deviations from predicted consumption levels. In the second stage these state-specific effects are regressed against a set of explanatory variables describing such state characteristics as spatial structure, climate, and employment in agriculture. State household gasoline-use rates were found to be negatively related to population density, percent of population living in metropolitan areas, agricultural employment, severe winter weather, and small car share of the vehicle fleet. They were positively related to the percentage of the population of working age and to the level of tourist activity. A companion report (ORNL-5391, ''An Investigation of the Variability of Gasoline Consumption among States,'' D. L. Greene) summarizes the major findings of this study.