Heterogeneity in price elasticity of vehicle kilometers traveled : evidence from micro-level panel data

This article uses a rich panel dataset of 1,741 Swiss households in order to examine the effect of fuel prices on household car travel demand. Elasticities are estimated for different segments of households, based on their socio-economic and psychological characteristics, on the features of their vehicles, as well as on their driving intensity. Our results, which draw on inter-individual comparisons, yield larger medium- to long-run price elasticity of demand for mileage than previous estimations using aggregate data for Switzerland, and show that there is important heterogeneity in price sensitivity across segments of households. Lower-income households, households living in urban areas, drivers in retirement age and drivers with more efficient vehicles are significantly more price-reactive compared to their respective counterparts. Quantile regression models show that within segments defined on the basis of income, location, age and motor efficiency there is further evidence for price heterogeneity. These results reveal that in addition to a gasoline tax, non-price measures could be tailored to several household segments in order to provide supplementary incentives to reduce mileage and/or avoid penalizing some specific groups.