The Effect of Gasoline Prices on the Demand for Sport Utility Vehicles

This paper uses household data from the 1988 to 2000 U.S. Consumer Expenditure Surveys to examine the determinants of new vehicle purchases, where vehicles are disaggregated into four categories: cars, trucks, vans, and sport-utility vehicles (SUVs). In particular, it analyzes the effect on vehicle choice of gas prices at time of vehicle purchase relative to that of gas prices in previous quarters, controlling for household demographic and location characteristics. Preliminary results suggest that households weigh previous quarters’ gas prices more heavily than contemporaneous ones when making vehicle purchasing decisions. This suggests that estimating medium and long run behavioral responses is important for accurately modeling the relationship between gasoline prices, vehicle purchases, and emissions.