Oregon Office of Economic Analysis

Given the extensive comments that arose from The Oregonian‘s article this weekend, and Professor Emerson’s eloquent post over at the Oregon Economics Blog, I wanted to provide some additional thoughts on the matter. The purpose of the data was to provide a ballpark estimate on the cost/effect of the self-service ban – a way to put the policy in perspective and frame the cost to the customer. The calculations are based solely on comparing Oregon to Washington. Given that the two states share many similar traits (geographical, political, cultural, climate, etc), the self serve gasoline policy provides a sort of natural experiment. The 3 to 5 cents per gallon range is calculated on the “what if” scenarios of altering Oregon’s gas station figures to match those of Washington and attributing the differences in the two state’s figures solely to the self service ban. In that respect, one can think of the 3 to 5 cents per gallon cost as an upper bound on the ban as this static comparison does not take into account any general equilibrium calculations or dynamic effects.

First a couple of quick calculations in response to some commenters. If Oregon had the same number of gas stations per capita as Washington, Oregon would have 104 more gas stations (a hypothetical 1,019 instead of the current 915). If Oregon had the same number of gas station employees per capita as Washington, Oregon would have 2,407 less employees (a hypothetical 7,403 instead of the current 9,810). Under such a scenario, Oregon would have more competition (more stations), less employment (and less total wages paid to employees), which, in a competitive market, would lead to slightly lower gas prices. However, the likely movement in gas prices at the pump would be a few cents per gallon.

Second, the general observation as noted in the Oregonian article that “Oregon’s gas is typically less expensive than Washington or California, according to the AAA” is not necessarily a reflection on the self service ban. Besides the policy itself, gas taxes and basic economics (supply and demand) affect the prices customers pay. As noted in the comments on the article, Washington’s gas tax is 37.5 cents per gallon, California’s is 47.7 cents per gallon and Oregon’s is 31 cents per gallon. These taxes certainly affect the price at the pump and I was curious to see what the correlation between gas prices and gas taxes was across all states. The graph below shows the gas tax on the horizontal axis and the statewide average price per gallon on the vertical axis.

There is clearly a relationship here, however it is not as strong as I had suspected prior to downloading the data. Removing Alaska and Hawaii reveals a stronger relationship (r-squared of 0.3), however for the full perspective, all states are included above.

Data: gas prices are state averages from AAA and gas taxes are 2011 figures from The Tax Foundation