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Fuel conserving (and using) production functions

  • Saunders, Harry D.
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    This article compares eight production/cost functions used or potentially useful for exploring how energy efficiency gains affect energy consumption. We show the practitioner's choice of function can inadvertently pre-determine results, and make recommendations as to which functions are flexible enough to prevent this. We also show pre-selected factor substitution elasticities can similarly pre-determine results. To aid the comparison we decompose the energy consumption "rebound" effect into intensity and output/income effects, which also delivers insight into the mechanisms of rebound. We conclude by recommending practitioners restrict themselves to either the Gallant (Fourier) or the Generalized Leontief/Symmetric Generalized Barnett cost functions as being sufficiently "rebound flexible." The Translog cost function may be suitable given certain conditions and a particular form of the CES (Solow) function is a possible, but problematic, candidate. Along the way, the article provides a general methodology for similarly examining any arbitrarily-defined constant returns to scale production or cost function.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0140-9883(07)00145-4
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    Article provided by Elsevier in its journal Energy Economics.

    Volume (Year): 30 (2008)
    Issue (Month): 5 (September)
    Pages: 2184-2235

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    Handle: RePEc:eee:eneeco:v:30:y:2008:i:5:p:2184-2235
    Contact details of provider: Web page: http://www.elsevier.com/locate/eneco

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