Abstract
The short-term elasticity of gasoline consumption is determined by both vehicle distances traveled and the efficiency with which each mile is driven. Rarely is the latter observed. We use novel micro-level data on on-road fuel consumption and fuel prices in Japan to estimate both the contemporaneous and dynamic effects of gasoline prices on on-road fuel economy. Our estimate of the contemporaneous price elasticity of on-road fuel economy is approximately 0.07, suggesting that approximately 19% of the price elasticity of gasoline consumption comes from improvements in fuel-conserving behavior. We also find limited habit formation of fuel economy changes; fuel economy effectively responds only to current gasoline prices. This is consistent with substantial utility costs for behavioral adjustments in fuel saving.
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