Residential consumption of gas and electricity in the U.S.: The role of prices and income
We study the residential demand for electricity and gas, working with nationwide household-level data that cover recent years, namely 1997-2007. Our dataset is a mixed panel/multi-year cross-sections of dwellings/households in the 50 largest metropolitan areas in the United States as of 2008. We estimate static and dynamic models of electricity and gas demand. We find strong household response to energy prices, both in the short and long term. From the static models, we get estimates of the own price elasticity of electricity demand in the -Â 0.860 to -Â 0.667 range, while the own price elasticity of gas demand is -Â 0.693 to -Â 0.566. These results are robust to a variety of checks. Contrary to earlier literature (Metcalf and Hassett, 1999; Reiss and White, 2005), we find no evidence of significantly different elasticities across households with electric and gas heat. The price elasticity of electricity demand declines with income, but the magnitude of this effect is small. These results are in sharp contrast to much of the literature on residential energy consumption in the United States, and with the figures used in current government agency practice. Our results suggest that there might be greater potential for policies which affect energy price than may have been previously appreciated.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Scarpa, Riccardo & Willis, Ken, 2010. "Willingness-to-pay for renewable energy: Primary and discretionary choice of British households' for micro-generation technologies," Energy Economics, Elsevier, vol. 32(1), pages 129-136, January.
- Meier, Helena & Rehdanz, Katrin, 2010.
"Determinants of residential space heating expenditures in Great Britain,"
Elsevier, vol. 32(5), pages 949-959, September.
- Helena Meier & Katrin Rehdanz, 2008. "Determinants of Residential Space Heating Expenditures in Great Britain," Working Papers FNU-166, Research unit Sustainability and Global Change, Hamburg University, revised Jul 2008.
- Meier, Helena & Rehdanz, Katrin, 2008. "Determinants of residential space heating expenditures in Great Britain," Kiel Working Papers 1439, Kiel Institute for the World Economy (IfW).
- Alberini, Anna & Filippini, Massimo, 2011. "Response of residential electricity demand to price: The effect of measurement error," Energy Economics, Elsevier, vol. 33(5), pages 889-895, September.
- Massimo Filippini & Anna Alberini, 2010. "Response of Residential Electricity Demand to Price: The Effect of Measurement Error," CEPE Working paper series 10-75, CEPE Center for Energy Policy and Economics, ETH Zurich.
- Poyer, David A. & Williams, Martin, 1993. "Residential energy demand: additional empirical evidence by minority household type," Energy Economics, Elsevier, vol. 15(2), pages 93-100, April.
- Burtless, Gary & Hausman, Jerry A, 1978. "The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiments," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1103-1130, December.
- G. Burtless & J. A. Hausman, 1977. "The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiment," Working papers 211, Massachusetts Institute of Technology (MIT), Department of Economics.
- Leth-Petersen, Soren & Togeby, Mikael, 2001. "Demand for space heating in apartment blocks: measuring effects of policy measures aiming at reducing energy consumption," Energy Economics, Elsevier, vol. 23(4), pages 387-403, July.
- Fell, Harrison & Li, Shanjun & Paul, Anthony, 2010. "A New Look at Residential Electricity Demand Using Household Expenditure Data," Discussion Papers dp-10-57, Resources For the Future.
- Harrison Fell & Shanjun Li & Anthony Paul, 2012. "A New Look at Residential Electricity Demand Using Household Expenditure Data," Working Papers 2012-04, Colorado School of Mines, Division of Economics and Business.
- Nesbakken, Runa, 1999. "Price sensitivity of residential energy consumption in Norway," Energy Economics, Elsevier, vol. 21(6), pages 493-515, December.
- Gilbert E. Metcalf & Kevin A. Hassett, 1999. "Measuring The Energy Savings From Home Improvement Investments: Evidence From Monthly Billing Data," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 516-528, August.
- Kevin A. Hassett & Gilbert E. Metcalf, 1997. "Measuring the Energy Savings from Home Improvements Investments: Evidence from Monthly Billing Data," Discussion Papers Series, Department of Economics, Tufts University 9701, Department of Economics, Tufts University.
- Gilbert E. Metcalf & Kevin A. Hassett, 1997. "Measuring the Energy Savings from Home Improvement Investments: Evidence from Monthly Billing Data," NBER Working Papers 6074, National Bureau of Economic Research, Inc.
- Rehdanz, Katrin, 2007. "Determinants of residential space heating expenditures in Germany," Energy Economics, Elsevier, vol. 29(2), pages 167-182, March.
- Katrin Rehdanz, 2005. "Determinants Of Residential Space Heating Expenditures In Germany," Working Papers FNU-66, Research unit Sustainability and Global Change, Hamburg University, revised Dec 2005.
- 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.
- Bushnell, James & Mansur, Erin T., 2005. "Consumption Under Noisy Price Signals: A Study of Electricity Retail Rate Deregulation in San Diego," Staff General Research Papers Archive 13142, Iowa State University, Department of Economics.
- Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
- R Blundell & Steven Bond, "undated". "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
- Richard Blundell & Stephen Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
- Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
- Carlson, J. Lon & Loomis, David, 2008. "An Assessment of the Impact of Deregulation on the Relative Price of Electricity in Illinois," The Electricity Journal, Elsevier, vol. 21(6), pages 60-70, July.
- Shin, Jeong-Shik, 1985. "Perception of Price When Price Information Is Costly: Evidence from Residential Electricity Demand," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 591-598, November.
- Peter C. Reiss & Matthew W. White, 2008. "What changes energy consumption? Prices and public pressures," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 636-663.
- Haas, Reinhard & Schipper, Lee, 1998. "Residential energy demand in OECD-countries and the role of irreversible efficiency improvements," Energy Economics, Elsevier, vol. 20(4), pages 421-442, September.
- Berry, David, 2008. "The impact of energy efficiency programs on the growth of electricity sales," Energy Policy, Elsevier, vol. 36(9), pages 3620-3625, September.
- Black, Dan A & Kniesner, Thomas J, 2003. "On the Measurement of Job Risk in Hedonic Wage Models," Journal of Risk and Uncertainty, Springer, vol. 27(3), pages 205-220, December.
- Dan A. Black & Thomas J. Kniesner, 2003. "On the Measurement of Job Risk in Hedonic Wage Models," Center for Policy Research Working Papers 49, Center for Policy Research, Maxwell School, Syracuse University.
- Dan A. Black & Thomas K. Kniesner, 2003. "On the Measurement of Job Risk in Hedonic Wage Models," NCEE Working Paper Series 200306, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Aug 2003.
- Paul, Anthony & Myers, Erica & Palmer, Karen, 2009. "A Partial Adjustment Model of U.S. Electricity Demand by Region, Season, and Sector," Discussion Papers dp-08-50, Resources For the Future.
- Kira R. Fabrizio & Nancy L. Rose & Catherine D. Wolfram, 2007. "Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on US Electric Generation Efficiency," American Economic Review, American Economic Association, vol. 97(4), pages 1250-1277, September.
- Kira Markiewicz & Nancy L. Rose & Catherine Wolfram, 2004. "Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency," NBER Working Papers 11001, National Bureau of Economic Research, Inc.
- Burtraw, Dallas & Palmer, Karen & Bharvirkar, Ranjit & Paul, Anthony, 2002. "The Effect on Asset Values of the Allocation of Carbon Dioxide Emission Allowances," The Electricity Journal, Elsevier, vol. 15(5), pages 51-62, June.
- Burtraw, Dallas & Palmer, Karen & Bharvirkar, Ranjit & Paul, Anthony, 2002. "The Effect on Asset Values of the Allocation of Carbon Dioxide Emission Allowances," Discussion Papers dp-02-15-, Resources For the Future.
- Quigley, John M & Rubinfeld, Daniel L, 1989. "Unobservables in Consumer Choice: Residential Energy and the Demand for Comfort," The Review of Economics and Statistics, MIT Press, vol. 71(3), pages 416-425, August.
- Liao, Huei-Chu & Chang, Tsai-Feng, 2002. "Space-heating and water-heating energy demands of the aged in the US," Energy Economics, Elsevier, vol. 24(3), pages 267-284, May.
- repec:zbw:rwirep:0081 is not listed on IDEAS
- Peter C. Reiss & Matthew W. White, 2005. "Household Electricity Demand, Revisited," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 853-883.
- A. Greening, Lorna & Greene, David L. & Difiglio, Carmen, 2000. "Energy efficiency and consumption -- the rebound effect -- a survey," Energy Policy, Elsevier, vol. 28(6-7), pages 389-401, June.
- Webster, Mort & Paltsev, Sergey & Reilly, John, 2008. "Autonomous efficiency improvement or income elasticity of energy demand: Does it matter?," Energy Economics, Elsevier, vol. 30(6), pages 2785-2798, November.
- Bernard, Jean-Thomas & Bolduc, Denis & Yameogo, Nadège-Désirée, 2011. "A pseudo-panel data model of household electricity demand," Resource and Energy Economics, Elsevier, vol. 33(1), pages 315-325, January.
- Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
- Tom Doan, "undated". "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Manuel Frondel & Christoph Schmidt & Colin Vance, 2012. "Emissions trading: Impact on electricity prices and energy-intensive industries," Intereconomics: Review of European Economic Policy, Springer;German National Library of Economics;Centre for European Policy Studies (CEPS), vol. 47(2), pages 104-111, March.
- Frondel, Manuel & Schmidt, Christoph M. & Vance, Colin, 2008. "Emissions Trading: Impact on Electricity Prices and Energy-Intensive Industries," Ruhr Economic Papers 81, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
- Carolyn Fischer, 2010. "Renewable Portfolio Standards: When Do They Lower Energy Prices?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 101-120.
- Jaffe, Adam B. & Stavins, Robert N., 1994. "The energy-efficiency gap What does it mean?," Energy Policy, Elsevier, vol. 22(10), pages 804-810, October.
- Maddala, G S, et al, 1997. "Estimation of Short-Run and Long-Run Elasticities of Energy Demand from Panel Data Using Shrinkage Estimators," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(1), pages 90-100, January.
- Kamerschen, David R. & Porter, David V., 2004. "The demand for residential, industrial and total electricity, 1973-1998," Energy Economics, Elsevier, vol. 26(1), pages 87-100, January.
- Kiviet, Jan F., 1995. "On bias, inconsistency, and efficiency of various estimators in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 68(1), pages 53-78, July.
- Tom Doan, "undated". "LSDVC: RATS procedure to estimate a dynamic FE model with correction for bias," Statistical Software Components RTS00111, Boston College Department of Economics.
- Garcia-Cerrutti, L. Miguel, 2000. "Estimating elasticities of residential energy demand from panel county data using dynamic random variables models with heteroskedastic and correlated error terms," Resource and Energy Economics, Elsevier, vol. 22(4), pages 355-366, October.
- Hendrik S. Houthakker, 1980. "Residential Electricity Revisited," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
- Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:33:y:2011:i:5:p:870-881. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.