The demand for rental housing: Evidence from the Housing Allowance Demand Experiment

This paper provides new evidence on the price and income elasticities of demand for rental housing by low income households. Housing expenditures of households participating in the Housing Allowance Demand Experiment and receiving housing allowances in the form of a proportional rent rebate are analyzed. These rent rebates experimentally vary the effective relative price of housing and thus enable estimation of the price elasticities. Natural income variation enables estimation of income elasticities. Analysis is carried out using two functional forms and a variety of models of housing dynamics. The estimated income and price elasticities of demand are 0.36 and −0.22, respectively. When the sample is restricted to include only households headed by couples, the elasticity estimates are 0.47 for income and −0.36 for price. These estimates are lower (in absolute value) than have been previously estimated and it is suggested that this may be due to the low-income nature of the sample.     

Residential energy demand in the United States: A regional econometric analysis

A static equilibrium and a dynamic partial adjustment model of residential demand for electricity and natural gas are presented and estimated for the United States over a recent period characterized by sharply increasing energy prices. The static model is estimated using Ordinary Least Squares while the instrumental variables method is used for the dynamic partial adjustment model. The estimates of long-run elasticities suggest the residential demand for electricity and natural gas are price and income elastic. Intercept and slope dummies used in the models identify significant regional differences in demand functions.     

Functional form,sample selection,and housing demand

This paper addresses issues of functional form and sample selection in estimating housing demand. Urban economic theory suggests that income and price elasticities be allowed to vary with reference incomes and housing prices. A generalized Box-Cox estimator rejects linear and log-log forms; semi-log forms are accepted in some cases. Sample truncation leads to downward biases in permanent income regressions, but to slightly upward-biased income elasticities. Price elasticities are generally unchanged.     

COMPETITION LAW AND COMMODITY MARKETS: THE CASE OF WHOLESALE ELECTRICITY

This paper considers some of the challenges that the exercise of market power in commodity markets poses for public policy, focusing on the case of wholesale electricity. The particular economic characteristics of electricity markets can give rise to market conditions where the price elasticities of both demand and supply are very low. Under such conditions, it may not be necessary for a supplier to have control over a large share of available capacity to be able to exercise substantial market power. This paper questions whether the two principal existing forms of supervision of these markets, Competition Law and financial regulation, are sufficient to address the types of problems that can be expected to arise given these characteristics. The answer to that question is in the negative.     

The relationships between income and price elasticities in studies of housing demand,tenure choice,and household formation

Three decisions pertaining to the demand for housing are (1) household formation, (2) tenure choice, and (3) how much housing to consume, given the household formation and tenure choice decisions. Income and price elasticities can be estimated that include one, two, or all three of these decisions. The relationships between these elasticities are developed.     

General equilibrium analysis of the benefits of large transportation improvements

This paper considers three benefit measures of a large transportation improvement in a general equilibrium framework, i.e., the Marshall-Dupuit consumer's surplus, the. compensating variation, and the compensating surplus. First, we examine whether or not the measures can be reduced to the area to the left of a suitably defined transportation demand curve. Second, the measures are expressed as functions of various price and income elasticities which can be empirically estimated and we analyze factors affecting the magnitudes of the general equilibrium benefit measures. Third, the general equilibrium measures are compared with the partial equilibrium measures.     

INTERFUEL SUBSTITUTION: A META‐ANALYSIS

Abstract This paper provides the first meta‐analysis of the interfuel substitutability literature. The sample includes 47 studies of interfuel substitution in the industrial sector, in manufacturing industry or manufacturing sub‐industries, or in the macro‐economy of a variety of developed and developing countries. Meta‐regressions are estimated for the six shadow elasticities of substitution between coal, oil, gas and electricity. I find that at the level of the industrial sector as a whole the oil–coal, oil–gas, oil–electricity and gas–electricity shadow elasticities of substitution are significantly greater than unity. The remaining elasticities – between coal and gas and coal and electricity – are insignificantly different from unity or zero due to their large standard errors. Substitution possibilities seem more constrained at the macro level and less constrained at lower levels of aggregation. Estimates of the elasticities of substitution from cross‐section regressions are generally largest whereas fixed effects panel estimates are intermediate in magnitude, and time‐series estimates are mostly much smaller. In order to obtain more precise and less biased estimates of long‐run elasticities of substitution, there is a need for additional primary studies using large samples and/or the between estimator which econometric research suggests is likely to provide the best estimates of long‐run elasticities.     

A two-level electricity demand model : Evaluation of the connecticut time-of-day pricing test

A two-stage budgeting model is developed for electricity demand where comsumption in each period is treated as a different commodity. A relative household demand model is first estimated, a consistent price index for electricity is constructed, and then a total electricity consumption model is estimated. Economic procedures are derived which permit application of the model to both time-of-day price situations and also declining vlock price situatiions which result in non-linear budget sets. The model is applied to both types of situations- the data from the Connecticut time-of-day pricing test as well as data from the declining block rate situation of the prevoius year. The model is also tested in a forecasting application to time-of-day customers.     

A neural network demand system with heteroskedastic errors

In this paper we consider estimation of demand systems with flexible functional forms, allowing an error term with a general conditional heteroskedasticity function that depends on observed covariates, such as demographic variables. We propose a general model that can be estimated either by quasi-maximum likelihood (in the case of exogenous regressors) or generalized method of moments (GMM) if the covariates are endogenous. The specification proposed in the paper nests several demand functions in the literature and the results can be applied to the recently proposed Exact Affine Stone Index (EASI) demand system of [Lewbel, A., Pendakur, K., 2008. Tricks with Hicks: The EASI implicit Marshallian demand system for unobserved heterogeneity and flexible Engel curves. American Economic Review (in press)]. Furthermore, flexible nonlinear expenditure elasticities can be estimated.     

Demand for electricity in Nigeria: Some empirical findings

This paper presents the findings from an econometric model of Nigerian electricity demand. Electricity consumers are partitioned into three classes-namely. Residential, Commercial and Industrial. It shows that over the last two decades there has been tremendous increase in both the supply and demand for electric energy. Although supply has increased, it has not been able to keep pace with demand. Various explanatory variables that determine changes in demand are analysed for each of the three consuming sectors. The findings are as follows.(i) Per capital income, previous level of electricity consumption and urbanization are the most significant explanatory variables for the Residential sector's electricity consumption. The short and long-run income elasticities are found to be below unity, while whose of urbanization are above unity. The average price of electricity, though rightly signed, was found to be insignificant.(ii) As regards the commercial sector, the significant explanatory variables were previous level of electricity consumption, income, average price of electricity and urbanization. Urbanization was, however, found to be the most sensitive variable in respect to changes in the sector's electricity demand.(iii) Previous level of industrial electricity consumption and degree of urbanization were the main explanatory variables for changes in the Industrial sector's demand for electricity. Industrial output and income were not found to be significant variables in explaining changes in the Industrial sector's demand for electricity.     

COEFFICIENT CHANGE,PRICE EFFECTS,AND IMPLICIT ELASTICITIES: ESTIMATING MICROECONOMIC DETERMINANTS OVER TWO TIME PERIODS

This paper presents and estimates an input–output model in which input coefficient changes are functions of changing prices. The model produces results that mirror the characteristics of input demand functions based on the model of cost minimization subject to producing a desired level of output. It does not rely on the specification of a functional form for input coefficients, and it does not require the use of assumptions regarding the elasticity of substitution. Instead, it allows the actual price and coefficient changes that occur between periods to identify the implicit elasticities and own- and cross-price derivatives. Using this model, it is shown how accurate measures of price effects, including the full array of own and cross-elasticities of demand, can be estimated for models comprising up to 15 sectors given data for only two time periods.     

The choice of functional forms for hedonic price equations: Comment

Rosen [13], Freeman [4], Halvorsen and Pollakowski [6], and others have stressed that economic theory does not suggest an appropriate functional form for hedonic price functions.¹ It consequently is reasonable to try several functional forms and utilize the multiple regression equation with the best performance. In this spirit, Halvorsen and Pollakowski [6] recommend using the Box-Cox flexible functional form for hedonic analysis and measuring best performance with a goodness of fit test. The Box-Cox methodology has also been adapted in hedonic studies by Goodman [5], Linneman [10], Blomquist and Worley [1], and Eberts and Gronberg [3].² The Box-Cox is particularly suited for testing functional forms because many familiar forms such as semilog, log linear, and translog are subsets of the flexible Box-Cox permitting nested hypothesis testing.In this note, we illustrate that the formal hypothesis testing advantage of the Box-Cox functional form is purchased at the expense of other important goals. The goal of most hedonic studies is to estimate the prices of the characteristics, to measure the response to changes in the prices, and/or to predict future expenditures. Using a best fit criterion to choose functional forms does not necessarily lead to more accurate estimates of characteristic prices. In fact, the large number of coefficients estimated with the Box-Cox functional form reduces the accuracy of any single coefficient which could lead to poorer estimates of specific prices. Second, because any negative number raised to a noninteger real power is imaginary, the traditional Box-Cox functional form is not suited to any data set containing negative numbers. Third, the Box-Cox functional form may be inappropriate for prediction. Since the mean predicted value of the untransformed dependent variable need not equal the mean of the sample upon which it is estimated, the predicted untransformed variable (housing value) will be biased. The predicted untransformed dependent variable may also be imaginary. Fourth, the nonlinear transformation results in complex estimates of slopes and elasticities which are often too cumbersome to use properly. We discuss each of these drawbacks and quantify them when possible in the remainder of this note.     

Macroeconomic Uncertainty and Oil Price Volatility

This paper shows that higher macroeconomic uncertainty causes higher oil price volatility. Regimes of low and high uncertainty are identified in a threshold VAR model in which the effects of structural oil demand and supply shocks are estimated. The results show that higher macroeconomic uncertainty, as measured by global industrial production volatility, significantly increases the sensitivity of oil prices to shocks in oil demand and supply. This occurs as uncertainty lowers the price elasticity of oil demand and supply. The difference in the estimated oil price elasticities is economically meaningful as the price impact of a similar change in oil production might double when it hits the economy in uncertain times. As such, varying uncertainty can explain why oil price volatility is typically higher during periods such as financial crises and recessions, and why oil price volatility changes over time more generally.     

Infrastructure-production system dynamics in national and regional systems: An econometric study of the Indian economy

Treating infrastructure inputs as quasi-fixed in the short run, a multi-equation econometric model of production-infrastructure (social overhead capital) interlinkages and adjustments is developed based on a flexible functional form. Adjustment dynamics are endogenized and costs of adjustments are explicitly incorporated. The model is estimated with regional and national data from India; results include optimal paths and speeds of adjustments for infrastructure inputs market inputs' own and cross-price elasticities and demand elasticities with respect to the level of output, infrastructure stocks and associated user costs; and production cost elasticities with respect to output and infrastructure stocks.     

Estimates of the demand for medical care under different functional forms

We estimate price and income elasticities from a linear, log-linear, and the almost ideal demand model (with and without an adjustment for selectivity bias) in an effort to show that special attention should be paid to the underlying assumptions of consumer behaviour when estimating a medical care demand model. The literature on medical care utilization is extended by incorporating two major components of spending as separate demands in a system of medical care spending. We find that estimates of elasticities vary depending on the functional form of the estimating equation, thus questioning the usefulness for policy purposes of single estimates of elasticities.     

The response of small and medium-size business customers to Time-of-Use (TOU) electricity rates in Israel

This paper reports on the methodology, data, and results of the Israeli Time-of-Use (TOU) electricity pricing experiment in the industrial/commercial sector. We concentrate on the estimation of the demand functions for electricity under TOU, and the net welfare gains which result from applying TOU rates to small and medium-size business customers in Israel. This experiment, which was preceded by a 15-month load research study to allow an optimal sample design, was concluded in June 1992. The analysis yielded four major conclusions: (1) The estimated gains of small and medium-size customers in Israel from TOU rates are sufficient to justify investment in TOU metering technology. (2) There have been small, but noticeable, shifts of electricity from the peak to the mid-peak (if relevant) and to the off-peak periods during all seasons of the year, and particularly during the winter. (3) The structure and number of labour shifts during the day, and weather, are important factors in determining the response of business customers to the TOU rates. (4) Price elasticities vary substantially over the seasons and across SIC groups; they do not vary with customer size.     

ECONOMETRIC ESTIMATION OF ARMINGTON IMPORT ELASTICITIES FOR A REGIONAL CGE MODEL OF THE ILLINOIS ECONOMY

One of the main concerns associated with the development and use of regional CGE models is the determination of key parameter values, particularly substitution and other price elasticities. A common problem is the lack of appropriate regional data for econometric estimation. Consequently, it is important to identify key parameters that are likely to be important in determining quantitative results and then to prioritize these for estimation where appropriate data are available. In this paper, the focus is on the estimation of the regional trade (import) substitution parameters, which tend to be important in analysis for regional economies (given their openness to trade). Here, commodity import elasticities for the Illinois economy are estimated and tested in a single region CGE model of the Illinois economy. In our econometric estimation, we apply a model that takes account of market size and distance in estimating the substitutability between commodities produced in Illinois and other US states.     

An elasticity approach to the analysis of Romanian foreign trade policy during the years of transition

This paper focuses on the effect of exchange rate variations on the economic evolution of a country in transition, facing inflation, output decrease and negative external shocks; the particular case of Romania is considered. The theoretical part is linked to the Fleming-Mundell model for an open economy, but additional assumptions of price mobility and capital immobility are introduced. The usual interest rate versus output graphic framework is switched from one to another, which plots the exchange rate (or real exchange rate) versus output; the author considers that such a representation fits the behavior of an economy in transition towards a market-based system better. A main role, according to this interpretation, is played by the exchange rate elasticities of imports and exports, which influence the images of the equilibria on the goods market and the balance of payment (the IS and BOP curves' slopes). Finally, an empirical analysis is made, as an example, on the Romanian energy imports data series; the attempts to calculate the exchange rate elasticity may be considered as reliable only in the short term. In order to estimate the global exchange rate elasticities of imports and exports, some aggregations of partial sectorial results might be a possible solution. In the Romanian case, the resulting elasticities seem to be lower than for other countries; this poses the question as to the effectiveness of exchange rate policies in managing the Romanian economy.     

A Bayesian approach to imposing curvature on distance functions

The estimated parameters of output distance functions frequently violate the monotonicity, quasi-convexity and convexity constraints implied by economic theory, leading to estimated elasticities and shadow prices that are incorrectly signed, and ultimately to perverse conclusions concerning the effects of input and output changes on productivity growth and relative efficiency levels. We show how a Bayesian approach can be used to impose these constraints on the parameters of a translog output distance function. Implementing the approach involves the use of a Gibbs sampler with data augmentation. A Metropolis–Hastings algorithm is also used within the Gibbs to simulate observations from truncated pdfs. Our methods are developed for the case where panel data is available and technical inefficiency effects are assumed to be time-invariant. Two models—a fixed effects model and a random effects model—are developed and applied to panel data on 17 European railways. We observe significant changes in estimated elasticities and shadow price ratios when regularity restrictions are imposed.     

Estimation of food demand in Turkey: method of an almost ideal demand system

In this study, data of the household income and consumption expenditure surveys conducted by the Turkish Statistical Institute for 1994 and 2003 years were used; income, price, and cross price elasticities under six aggregated product groups were estimated within the framework of the an almost ideal demand system approach for food expenditures; and estimation of household consumers’ food demand in Turkey was analyzed. According to the findings obtained, it was established that a price-bound change would appear in the food demand, and elasticities were calculated. Expenditures by product groups and price elasticities were obtained, and the product groups were aggregated as bread and cereals; meat, fish, and poultry; milk and dairy products, oil and egg; vegetables and fruits; various fast food and alcoholic and non-alcoholic beverages.