Possibility for hedging from price increases in residential energy demand
AbstractLiberalisation of the Norwegian electricity market has given more short-term variation in the electricity price. Since almost three quarters of Norwegian households have heating equipment using more than one energy carrier, we would expect them to be able to hedge from price increases and benefit from low prices by switching between energy carriers. In many studies estimates of the cross price derivatives in Norwegian residential energy consumption give a negative sign. The question is whether hedging is possible despite this negative sign, that is, if energy goods are alternatives and not separable in consumption. To answer this question, we estimate a conditional demand model on a sample of 2438 households to decompose the cross price derivatives. We find that the negative cross price derivatives are mainly due to budget effects. We also reject the hypothesis of weak separability, indicating that Norwegian households are able to hedge from energy price variations.
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Bibliographic InfoPaper provided by Research Department of Statistics Norway in its series Discussion Papers with number 347.
Date of creation: Apr 2003
Date of revision:
Residential energy demand; empirical microanalysis; separability test;
Find related papers by JEL classification:
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-06-04 (All new papers)
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