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Interfuel substitution in the United States

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Author Info

  • Serletis, Apostolos
  • Timilsina, Govinda R.
  • Vasetsky, Olexandr

Abstract

In this paper, we use the locally flexible translog functional form to investigate the demand for energy and interfuel substitution in the United States and to provide a comparison of our results with most of the existing empirical energy demand literature. Motivated by the widespread practice of ignoring theoretical regularity, we follow Barnett's (2002) suggestions and estimate the model subject to theoretical regularity, using methods developed by Diewert and Wales (1987) and Ryan and Wales (2000), in an attempt to produce inference consistent with neoclassical microeconomic theory. Moreover, we use the most recent data, published by the U.S. Energy Information Administration (EIA), and in addition to investigating interfuel substitution possibilities in total U.S. energy demand, we follow Serletis et al. (2009) and also examine interfuel substitution possibilities in energy demand by sector. Moreover, we test for weak separability, with the objective of discovering the structure of the functional form in total energy demand as well as energy demand by sector.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 32 (2010)
Issue (Month): 3 (May)
Pages: 737-745

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Handle: RePEc:eee:eneeco:v:32:y:2010:i:3:p:737-745

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Web page: http://www.elsevier.com/locate/eneco

Related research

Keywords: Flexible functional forms Translog cost function Theoretical regularity;

References

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  1. Serletis, Apostolos & Shahmoradi, Asghar, 2008. "Semi-nonparametric estimates of interfuel substitution in U.S. energy demand," Energy Economics, Elsevier, vol. 30(5), pages 2123-2133, September.
  2. Barten, A. P., 1969. "Maximum likelihood estimation of a complete system of demand equations," European Economic Review, Elsevier, vol. 1(1), pages 7-73.
  3. Ryan, David L. & Wales, Terence J., 2000. "Imposing local concavity in the translog and generalized Leontief cost functions," Economics Letters, Elsevier, vol. 67(3), pages 253-260, June.
  4. Considine, Timothy J., 1989. "Separability, functional form and regulatory policy in models of interfuel substitution," Energy Economics, Elsevier, vol. 11(2), pages 82-94, April.
  5. Jones, Clifton T, 1995. "A Dynamic Analysis of Interfuel Substitution in U.S. Industrial Energy Demand," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(4), pages 459-65, October.
  6. Pindyck, Robert S, 1979. "Interfuel Substitution and the Industrial Demand for Energy: An International Comparison," The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 169-79, May.
  7. Berndt, Ernst R & Wood, David O, 1975. "Technology, Prices, and the Derived Demand for Energy," The Review of Economics and Statistics, MIT Press, vol. 57(3), pages 259-68, August.
  8. Diewert, W E & Wales, T J, 1992. "Quadratic Spline Models for Producer's Supply and Demand Functions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(3), pages 705-22, August.
  9. Feng, Guohua & Serletis, Apostolos, 2008. "Productivity trends in U.S. manufacturing: Evidence from the NQ and AIM cost functions," Journal of Econometrics, Elsevier, vol. 142(1), pages 281-311, January.
  10. Berndt, Ernst R & Christensen, Laurits R, 1973. "The Internal Structure of Functional Relationships: Separability, Substitution and Aggregation," Review of Economic Studies, Wiley Blackwell, vol. 40(3), pages 403-10, July.
  11. Diewert, W E, 1971. "An Application of the Shephard Duality Theorem: A Generalized Leontief Production Function," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 481-507, May-June.
  12. Diewert, Walter E & Wales, Terence J, 1987. "Flexible Functional Forms and Global Curvature Conditions," Econometrica, Econometric Society, vol. 55(1), pages 43-68, January.
  13. Gallant, A. Ronald, 1981. "On the bias in flexible functional forms and an essentially unbiased form : The fourier flexible form," Journal of Econometrics, Elsevier, vol. 15(2), pages 211-245, February.
  14. 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.
  15. Urga, Giovanni & Walters, Chris, 2003. "Dynamic translog and linear logit models: a factor demand analysis of interfuel substitution in US industrial energy demand," Energy Economics, Elsevier, vol. 25(1), pages 1-21, January.
  16. Denny, Michael & Fuss, Melvyn A, 1977. "The Use of Approximation Analysis to Test for Separability and the Existence of Consistent Aggregates," American Economic Review, American Economic Association, vol. 67(3), pages 404-18, June.
  17. Barnett, William A., 2002. "Tastes and technology: curvature is not sufficient for regularity," Journal of Econometrics, Elsevier, vol. 108(1), pages 199-202, May.
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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. Thomas Michielsen, 2013. "Brown Backstops Versus the Green Paradox," OxCarre Working Papers 108, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  3. Timothy J. Considine & Edward J. M. Manderson, 2013. "The Cost of Solar-Centric Renewable Portfolio Standards," The School of Economics Discussion Paper Series 1323, Economics, The University of Manchester.
  4. Serletis, Apostolos & Timilsina, Govinda & Vasetsky, Olexandr, 2011. "International evidence on aggregate short-run and long-run interfuel substitution," Energy Economics, Elsevier, vol. 33(2), pages 209-216, March.

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