Price Elasticity of Gas Demand on L1 and L2: Evidence from Ethereum and Arbitrum (opens in new tab)

We estimate the causal price elasticity of gas demand on Ethereum mainnet (L1) and Arbitrum One (L2), a quantity necessary for calibrating fee mechanism simulations, evaluating resource pricing reforms, and explaining observed usage patterns. A two-way fixed effects panel regression instrumented by each wallet's own lagged base fee removes the congestion-driven endogeneity that causes naive regressions to substantially underestimate demand sensi...