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Bayesian Estimation of Demand Functions under Block Rate Pricing

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  • Koji Miyawaki

    (Graduate School of Economics, University of Tokyo)

  • Yasuhiro Omori

    (Faculty of Economics, University of Tokyo)

  • Akira Hibiki

    (National Institute for Environmental Studies and Department of Social Engineering, Tokyo Insitute of Technology)

Abstract

This article proposes a Bayesian estimation method of the demand function under block rate pricing, mainly focusing on increasing block rat epricing. Block rate pricing is often observed in public sectors, such as water and electricity. Under this price structure, price changes when consumption exceeds a certain threshold, and the demand function is subject to a piece wise-linear budget constraint. We apply a discrete/continuous choice model to analyze household behavior with such a price system and take a hierarchical Bayesian approach to estimate its demand function. Moreover, a separability condition is additionally considered to obtain proper estimates. The model is extended to allow random coefficients for panel data and spatial correlation to account for consumer heterogeneity of spatial data. The proposed method is applied to estimate the Japanese residential water demand function under increasing block rate pricing.

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Bibliographic Info

Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-424.

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Length: 29pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:tky:fseres:2006cf424

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References

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  1. Peter C. Reiss & Matthew W. White, 2005. "Household Electricity Demand, Revisited," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 853-883.
  2. Herriges, Joseph A & King, Kathleen Kuester, 1994. "Residential Demand for Electricity under Inverted Block Rates: Evidence from a Controlled Experiment," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 419-30, October.
  3. De Jong, G. C., 1990. "An indirect utility model of car ownership and private car use," European Economic Review, Elsevier, vol. 34(5), pages 971-985, July.
  4. Jasper M. Dalhuisen & Raymond J. G. M. Florax & JHenri L. F. de Groot & Peter Nijkamp, 2003. "Price and Income Elasticities of Residential Water Demand: A Meta-Analysis," Land Economics, University of Wisconsin Press, vol. 79(2), pages 292-308.
  5. Hausman, Jerry A, 1985. "The Econometrics of Nonlinear Budget Sets," Econometrica, Econometric Society, vol. 53(6), pages 1255-82, November.
  6. Kunitomo, Naoto & Sato, Seisho, 1996. "Asymmetry in economic time series and the simultaneous switching autoregressive model," Structural Change and Economic Dynamics, Elsevier, vol. 7(1), pages 1-34, March.
  7. Chib, Siddhartha, 1992. "Bayes inference in the Tobit censored regression model," Journal of Econometrics, Elsevier, vol. 51(1-2), pages 79-99.
  8. Julie A. Hewitt & W. Michael Hanemann, 1995. "A Discrete/Continuous Choice Approach to Residential Water Demand under Block Rate Pricing," Land Economics, University of Wisconsin Press, vol. 71(2), pages 173-192.
  9. Hanemann, W Michael, 1984. "Discrete-Continuous Models of Consumer Demand," Econometrica, Econometric Society, vol. 52(3), pages 541-61, May.
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Cited by:
  1. Koji Miyawaki & Yasuhiro Omori & Akira Hibiki, 2010. "Panel Data Analysis of Japanese Residential Water Demand Using a Discrete/Continuous Choice Approach," Global COE Hi-Stat Discussion Paper Series gd09-123, Institute of Economic Research, Hitotsubashi University.
  2. Henrique Monteiro, 2010. "Residential Water Demand in Portugal: checking for efficiency-based justifications for increasing block tariffs," Working Papers Series 1 ercwp0110, ISCTE-IUL, Business Research Unit (BRU-IUL).
  3. Koji Miyawaki & Yasuhiro Omori, 2007. "Duality-Based Analysis of Residential Gas Demand under Decreasing Block Rate Pricing," CIRJE F-Series CIRJE-F-506, CIRJE, Faculty of Economics, University of Tokyo.
  4. Koji Miyawaki & Yasuhiro Omori & Akira Hibiki, 2013. "A Discrete/Continuous Choice Model on the Nonconvex Budget Set," CIRJE F-Series CIRJE-F-881, CIRJE, Faculty of Economics, University of Tokyo.
  5. Koji Miyawaki & Yasuhiro Omori & Akira Hibiki, 2010. "Discrete/Continuous Choice Model of the Residential Gas Demand on the Nonconvex Budget Set," CIRJE F-Series CIRJE-F-770, CIRJE, Faculty of Economics, University of Tokyo.

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