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An almost ideal supply system estimate of US energy substitution

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  • Thompson, Alexi

Abstract

This paper introduces a Linear Almost Ideal Supply System (LAISS) model to examine aggregate US energy demand. Based on the Almost Ideal Demand System (AIDS) model, the LAISS model is a flexible functional form for imposing and testing properties of demand for the inputs of production. Own and cross price elasticities are derived for aggregate capital, labor, and energy, and compared to the translog cost function. Both models reduce to estimating a system of input share equations on input prices and output, with output normalized by the Stone's input price index in the LAISS model. Results indicate that all inputs are substitutes in both models, but elasticities differ. A log likelihood dominance criterion shows that the LAISS model dominates the translog cost function for this dataset. Results suggest that inputs are substitutes, and that an energy import tariff would increase demand for labor and capital.

Suggested Citation

  • Thompson, Alexi, 2013. "An almost ideal supply system estimate of US energy substitution," Energy Economics, Elsevier, vol. 40(C), pages 813-818.
  • Handle: RePEc:eee:eneeco:v:40:y:2013:i:c:p:813-818
    DOI: 10.1016/j.eneco.2013.09.025
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    References listed on IDEAS

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    More about this item

    Keywords

    Almost ideal supply system; Energy substitution; Translog cost function;

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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