Per-Cluster Instrumental Variables Estimation: Uncovering the Price Elasticity of the Demand for Gasoline

Michael Bates and Seolah Kim ()
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Seolah Kim: UCR

No 202003, Working Papers from University of California at Riverside, Department of Economics

Abstract: We propose a per-cluster instrumental variables estimator (PCIV) for estimating population average effects under correlated random coefficient models in the presence of endogeneity. We demonstrate consistency, showing robustness over standard estimators, and provide analytic standard errors for robust inference. We compare PCIV, fixed-effects instrumental variables, and pooled 2-stage least squares estimators using Monte Carlo simulation verifying that PCIV performs relatively well. We also apply the approaches, examining the monthly responsiveness of gasoline consumption to prices as instrumented by state fuel taxes. We find that US consumers are on average more elastic in their demand for gasoline than previous estimates imply.

Keywords: population average effects; climate policy; gasoline taxation (search for similar items in EconPapers)
JEL-codes: C33 C36 Q41 Q54 Q58 (search for similar items in EconPapers)
Pages: 70 Pages
Date: 2019-08
New Economics Papers: this item is included in nep-ecm and nep-ene
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https://economics.ucr.edu/repec/ucr/wpaper/202003.pdf First version, 2019 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:ucr:wpaper:202003

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