We use novel microdata on on-road fuel consumption and prices paid for fuel in Japan to estimate short-run elasticities of demand for gasoline consumption. We have three main findings. First, our elasticity estimates (roughly 0.37) are larger than previously estimated using more aggregate data. Second, we are one of the first papers to be able to separately estimate both the response of miles driven to gasoline prices and on-road fuel economy; where the latter measures how aggressive drivers drive and vehicle maintenance. We find an elasticity of on-road fuel economy with respect to gasoline prices of 0.07. Lastly, we find that actual fuel economy is determined by recent prices than distant past prices paid, suggesting limited habit formation of fuel-conserving driving behaviors.
Keywords: price elasticity of gasoline consumption, energy efficiency, learning
JEL Codes: Q31, Q41, R48, D12, L71