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A Comparison of Multivariate Logit and Translog Models for Energy and Nonenergy Input Cost Share Analysis

Thomas J. Lutton and Michael R. LeBlanc

Year: 1984
Volume: Volume 5
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No4-3
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Abstract:
With the advent of the translogarithmic (translog) cost function has come greater interest in estimating systems of input share equations (Christensen and Greene, 1976; Berndt and Wood, 1975). A distinguishing feature of the translog cost function is that optimal input shares are linear in parameters. The linearity arises from the second-order approximation and facilitates estimation of the share system. Linearity, however may result in negative fitted shares if error terms are assumed to be additive and normally distributed. Woodland (1979) demonstrated that maximum likelihood estimators with an underlying Dirichlet distribution constrain fitted shares to be inside the zero-one interval for the sample. However, it is possible to obtain shares outside the zero-one interval when the model is used for forecasting. Moreover, there is no theoretical reason why input shares should be monotonic in input prices. If a third-order Taylor series expansion is assumed, the monotonicity restriction can be relaxed, but such an assumption sacrifices the principle of parametric parsimony (Fuss et al., 1978).



Customer Responsiveness to Real-Time Pricing of Electricity

Jay Zarnikau

Year: 1990
Volume: Volume 11
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol11-No4-6
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Abstract:
The success of real-time pricing efforts will depend in large part upon the extent to which electricity consumers are able to alter their consumption patterns in response to the prices quoted by the utility. This article provides some original estimates of hourly price elasticity responses to real-time prices by large industrial energy consumers.



Energy Substitutability in Canadian Manufacturing Econometric Estimation with Bootstrap Confidence Intervals

Yazid Dissou and Reza Ghazal

Year: 2010
Volume: Volume 31
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol31-No1-6
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Abstract:
This study provides estimates of the price and Morishima substitution elasticities between energy and non-energy inputs in two Canadian energy-intensive manufacturing industries: Primary Metal and Cement. The elasticities are estimated using annual industry-level KLEM data (1961-2003) and relying on two flexible functional forms: the Translog and the Symmetric Generalized McFadden (SGM) cost functions. In addition to the point estimates, the confidence intervals of the elasticities are computed using Studentized bootstrap resampling techniques. For both industries, the estimation results suggest that capital, labour, material and energy are pairwise substitutes and that energy is the most substitutable input. However, the low magnitudes of the estimated elasticities do not seem to offer great flex



International Evidence on Sectoral Interfuel Substitution

Apostolos Serletis, Govinda R. Timilsina and Olexandr Vasetsky

Year: 2010
Volume: Volume 31
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol31-No4-1
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Abstract:
This paper estimates interfuel substitution elasticities in selected devel�oping and industrialized economies at the sector level. In doing so, it employs state-of-the-art techniques in microeconometrics, particularly the locally .exible normalized quadratic functional form, and provides evidence consistent with neo�classical microeconomic theory. The results indicate that the interfuel substitution elasticities are consistently below unity, revealing the limited ability to substitute between major energy commodities (i.e., coal, oil, gas, and electricity). We .nd that on average, industrial and residential sectors tend to exhibit higher potential for substitution between energy inputs as compared to the electricity generation and transportation sectors in all countries, with the United States being the only exception. In addition, we .nd that developed countries demonstrate higher po�tential for interfuel substitution in their industrial and transportation sectors as compared to the developing economies. The implication is that interfuel substi�tution depends on the structure of the economy, not the level of economic devel�opment. Moreover, higher changes in relative prices are needed than what we have already experienced to induce switching toward a lower carbon economy.



Long-run Cost Functions for Electricity Transmission

Juan Rosellón, Ingo Vogelsang, and Hannes Weigt

Year: 2012
Volume: Volume 33
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol33-No1-5
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Abstract:
Electricity transmission has become the pivotal industry segment for electricity restructuring. Yet, little is known about the shape of transmission cost functions. Reasons for this can be a lack of consensus about the definition of transmission output and the complexitity of the relationship between optimal grid expansion and output expansion. Knowledge of transmission cost functions could help firms (Transcos) and regulators plan transmission expansion and could help design regulatory incentive mechanisms. We explore transmission cost functions when the transmission output is defined as point-to-point transactions or financial transmission right (FTR) obligations and particularly explore expansion under loop-flows. We test the behavior of FTR-based cost functions for distinct network topologies and find evidence that cost functions defined as FTR outputs are piece-wise differentiable and that they contain sections with negative marginal costs. Simulations, however, illustrate that such unusual properties do not stand in the way of applying price-cap incentive mechanisms to real-world transmission expansion. Key words: Electricity transmission, Cost function, Incentive regulation, Merchant investment, Congestion management



Sectoral Interfuel Substitution in Canada: An Application of NQ Flexible Functional Forms

Ali Jadidzadeh and Apostolos Serletis

Year: 2016
Volume: Volume 37
Number: Number 2
DOI: 10.5547/01956574.37.2.ajad
View Abstract

Abstract:
This paper focuses on the aggregate demand for electricity, natural gas, and light fuel oil in Canada as a whole and six of its provinces - Quebec, Ontario, Manitoba, Saskatchewan, Alberta, and British Columbia - in the residential, commercial, and industrial sectors. We employ the locally flexible normalized quadratic (NQ) expenditure function (in the case of the residential sector) and the NQ cost function (in the case of the commercial and industrial sectors), treat the curvature property as a maintained hypothesis, and provide evidence consistent with neoclassical microeconomic theory. We find that the Morishima interfuel elasticities of substitution are in general positive and statistically significant. Our results indicate limited substitutability between electricity and natural gas, but strong substitutability between light fuel oil and each of electricity and natural gas in most cases.





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