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Bayesian Estimation of Demand Functions under Block Rate Pricing

Author

Listed:
  • 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.

Suggested Citation

  • Koji Miyawaki & Yasuhiro Omori & Akira Hibiki, 2006. "Bayesian Estimation of Demand Functions under Block Rate Pricing," CIRJE F-Series CIRJE-F-424, CIRJE, Faculty of Economics, University of Tokyo.
    • Handle: RePEc:tky:fseres:2006cf424
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    References listed on IDEAS

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    Cited by:

    1. Koji Miyawaki & Yasuhiro Omori & Akira Hibiki, 2018. "A discrete/continuous choice model on a nonconvex budget set," Econometric Reviews, Taylor & Francis Journals, vol. 37(2), pages 89-113, February.
    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 & Akira Hibiki, 2011. "Panel Data Analysis Of Japanese Residential Water Demand Using A Discrete/Continuous Choice Approach," The Japanese Economic Review, Japanese Economic Association, vol. 62(3), pages 365-386, September.
    4. 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.
    5. 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.
    6. Kertous, Mourad & Zerzour, Sahad, 2015. "To pay or not to pay? Water bill and delay in payment in Bejaia (Algeria): A duration analysis," MPRA Paper 67801, University Library of Munich, Germany.

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