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Simulated maximum likelihood estimation of demand systems with corner solutions and panel data application to industrial energy demand

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  • Raja Chakir
  • Alban Thomas

Abstract

This paper proposes a convenient method for evaluating energy price elasticities, when firms may switch between energy regimes. The methodology involves estimation of an energy demand system that explicitly deals with the zero expenditures problem, while allowing for unobserved heterogeneity. We apply a Simulated Maximum Likelihood technique for estimating a simultaneous equation energy demand system in the French pulp and paper sector, over the period1983-1996. Endogenous regime transitions are accounted for when computing energy price elasticities. Our estimates are used to predict the outcome of an environmental policy aimed at reducing CO2 emissions in the paper and pulp industry.

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Bibliographic Info

Article provided by Dalloz in its journal Revue d'économie politique.

Volume (Year): Volume 113 (2003)
Issue (Month): 6 ()
Pages: 773-799

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Handle: RePEc:cai:repdal:redp_136_0773

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Web page: http://www.cairn.info/revue-d-economie-politique.htm

Related research

Keywords: simulated maximum likelihood; non-negativity constraints; energy demand estimation;

References

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  1. Keane, Michael P, 1994. "A Computationally Practical Simulation Estimator for Panel Data," Econometrica, Econometric Society, vol. 62(1), pages 95-116, January.
  2. Hajivassiliou, 1993. "A Simulation Estimation Analysis of the External Debt Crises of Developing Countries," Cowles Foundation Discussion Papers 1057, Cowles Foundation for Research in Economics, Yale University.
  3. Diewert, Walter E & Wales, Terence J, 1987. "Flexible Functional Forms and Global Curvature Conditions," Econometrica, Econometric Society, vol. 55(1), pages 43-68, January.
  4. Alan D. Woodland, 1993. "A Micro-Econometric Analysis of the Industrial Demand for Energy in NSW," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 57-90.
  5. Chihwa Kao & Lung-fei Lee & Mark M. Pitt, 2000. "Simulated Maximum Likelihood Estimation of the Linear Expenditure System with Binding Non-Negativity Constraints," CEMA Working Papers 50, China Economics and Management Academy, Central University of Finance and Economics, revised Apr 2001.
  6. Vassilis A. Hajivassiliou, 1991. "Simulation Estimation Methods for Limited Dependent Variable Models," Cowles Foundation Discussion Papers 1007, Cowles Foundation for Research in Economics, Yale University.
  7. Vassilis A. Hajivassiliou & Axel Borsch-Supan, 1990. "Smooth Unbiased Multivariate Probability Simulators for Maximum Likelihood Estimation of Limited Dependent Variable Models," Cowles Foundation Discussion Papers 960, Cowles Foundation for Research in Economics, Yale University.
  8. Fuss, Melvyn A., 1977. "The demand for energy in Canadian manufacturing : An example of the estimation of production structures with many inputs," Journal of Econometrics, Elsevier, vol. 5(1), pages 89-116, January.
  9. Neary, J.P & Roberts, K.W.S, 1978. "The Theory of Household Behaviour under Rationing," The Warwick Economics Research Paper Series (TWERPS) 132, University of Warwick, Department of Economics.
  10. Bousquet, Alain & Ivaldi, Marc, 1998. "An individual choice model of energy mix," Resource and Energy Economics, Elsevier, vol. 20(3), pages 263-286, September.
  11. Wales, T. J. & Woodland, A. D., 1983. "Estimation of consumer demand systems with binding non-negativity constraints," Journal of Econometrics, Elsevier, vol. 21(3), pages 263-285, April.
  12. Lee, Lung-Fei & Pitt, Mark M, 1986. "Microeconometric Demand Systems with Binding Nonnegativity Constraints: The Dual Approach," Econometrica, Econometric Society, vol. 54(5), pages 1237-42, September.
  13. Wales, T J & Woodland, A D, 1980. "Sample Selectivity and the Estimation of Labor Supply Functions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(2), pages 437-68, June.
  14. Thomas Bue Bjorner & Henrik Holm Jensen, 2002. "Interfuel Substitution within Industrial Companies: An Analysis Based on Panel Data at Company Level," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 27-50.
  15. Mark M. Pitt & Daniel L. Millimet, 1999. "Estimation of Coherent Demand Systems with Many Binding Non-Negativity Constraints," Working Papers 99-4, Brown University, Department of Economics.
  16. Van Soest, Arthur & Kooreman, Peter, 1990. "Coherency of the indirect translog demand system with binding nonnegativity constraints," Journal of Econometrics, Elsevier, vol. 44(3), pages 391-400, June.
  17. George Kouris, 1983. "Energy Demand Elasticities in Industrialized Countries: A Survey," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 73-94.
  18. Keane, Michael, 1993. "Simulation estimation for panel data models with limited dependent variables," MPRA Paper 53029, University Library of Munich, Germany.
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Citations

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Cited by:
  1. Lin, Boqiang & Wesseh, Presley K., 2013. "Estimates of inter-fuel substitution possibilities in Chinese chemical industry," Energy Economics, Elsevier, vol. 40(C), pages 560-568.
  2. BEL François & LACROIX Anne & SALANIE François & THOMAS Alban, 2006. "Evaluating the impact of CAP reforms on land use and the environment: a two-step estimation with multiple selection rules and panel data," LERNA Working Papers 06.13.206, LERNA, University of Toulouse.

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