Imperfect Price-Reversibility of Passenger Transportation Demand in China

This paper examines the effect of gasoline and diesel prices on passenger transportation demand. To solve the urban haze problem caused by the consumption of petroleum products by transportation, pricing policies are examined as a primary way to adjust supply and demand. Koyck´s distributed lag model is used to analyze the long-term relationship between oil prices and passenger transportation demand, and a simple linear equation is presented to analyze the short-term relationship. In addition, using an estimation based on monthly data from 2010 to 2012, price decomposition techniques are employed to separately analyze the demand when prices rise or fall. The results indicate that passenger transportation demand decreases more rapidly when price rises than when the price falls. However, the demand increases when the maximum historical price increases. Further, passenger traffic demand adjusts more slowly when the diesel price changes than when the gasoline prices change, which indicates that more attention should be paid to gasoline prices when analyzing passenger traffic demand.