Rational habits in gasoline demand

K Scott

Energy Economics, 2012, vol. 34, issue 5, 1713-1723

Abstract: The dynamics of demand for energy goods such as gasoline are complicated by investment decisions and behavioral habits. Both types of complication can be captured by a habits model, in which past consumption enters into an agent's current utility function. If the agent is forward-looking, or ‘rational’, then habits imply his consumption of the habit-forming good will be sensitive to his expectation of future market conditions, in particular future prices. This sensitivity implies, in turn, that traditional measures of price elasticity will underproject consumers' responsiveness to policy interventions.

Keywords: Gasoline demand; Rational habits; Price elasticity (search for similar items in EconPapers)
JEL-codes: C23 D12 D81 Q41 Q50 R40 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:34:y:2012:i:5:p:1713-1723

DOI: 10.1016/j.eneco.2012.02.007

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