Working Paper

Formative Experiences and the Price of Gasoline

Abstract: An individual?s initial experiences with a common good, such as gasoline, can shape their behavior for decades. We first show that the 1979 oil crisis had a persistent neg-ative effect on the likelihood that individuals that came of driving age during this time drove to work in the year 2000 (i.e., in their mid 30s). The effect is stronger for those with lower incomes and those in cities. Combining data on many cohorts, we then show that large increases in gasoline prices between the ages of 15 and 18 sig-nificantly reduce both (i) the likelihood of driving a private automobile to work and (ii) total annual vehicle miles traveled later in life, while also increasing public tran-sit use. Differences in driver license age requirements generate additional variation in the formative window. These effects cannot be explained by contemporaneous in-come and do not appear to be only due to increased costs from delayed driving skill acquisition. Instead, they seem to reflect the formation of preferences for driving or persistent changes in the perceived costs of driving.

Keywords: formative experiences; preference persistence; path dependence; driving behavior; gasoline price;

JEL Classification: D12; D90; L91; Q41; R41;

https://doi.org/10.21799/frbp.wp.2019.35

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2019-09-18

Number: 19-35

Pages: 61 pages