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An individual choice model of energy mix

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  • Bousquet, Alain
  • Ivaldi, Marc

Abstract

Usually firms operate with a restricted number of energy sources. In the dairy industry, most firms have multi-energy systems allowing them to shift from one energy source to another at almost no cost. Zero expenditures are observed because firms minimize costs and non-negativity constraints on the demand functions are binding. Estimation of demand systems when the probability of observing zero expenditures is not nil has already received attention from econometricians. However, most surveys generally report prices only for the subset of goods actually purchased. The econometrician faces a problem of missing price observations when zero expenditures occur. The originality of our approach is to propose a combined and coherent treatment of both the zero expenditures and missing data. Price equations are added to the demand system and the cost-minimizing mix of energy inputs leads to a simultaneous equation/limited dependent variable model. A general framework is provided in which it is possible to formulate parameter restrictions which guarantee consistency of the cost minimizing model and its relationship to a generalized tobit model with errors in variables. An application to a sample drawn from a survey on firms of the French dairy industry shows the strength of a model which decomposes the choice of energy mix in two parts: a qualitative preference and a quantitative decision. A micro-simulation model gives evidence of the practical use of this study. Nonetheless some theoretical points remain unsolved and should motivate further research.

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  • Bousquet, Alain & Ivaldi, Marc, 1998. "An individual choice model of energy mix," Resource and Energy Economics, Elsevier, vol. 20(3), pages 263-286, September.
  • Handle: RePEc:eee:resene:v:20:y:1998:i:3:p:263-286
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    1. MAHENC Philippe, 2008. "Optimal environmental taxation when green alternative is available," LERNA Working Papers 08.04.248, LERNA, University of Toulouse.
    2. Gómez-Calvet, Roberto & Conesa, David & Gómez-Calvet, Ana Rosa & Tortosa-Ausina, Emili, 2014. "Energy efficiency in the European Union: What can be learned from the joint application of directional distance functions and slacks-based measures?," Applied Energy, Elsevier, vol. 132(C), pages 137-154.
    3. Csereklyei, Zsuzsanna & Thurner, Paul W. & Langer, Johannes & Küchenhoff, Helmut, 2017. "Energy paths in the European Union: A model-based clustering approach," Energy Economics, Elsevier, vol. 65(C), pages 442-457.
    4. Tauchmann, H., 2006. "Firing the furnace? An econometric analysis of utilities' fuel choice," Energy Policy, Elsevier, vol. 34(18), pages 3898-3909, December.
    5. Jevgenijs Steinbuks, 2012. "Interfuel Substitution and Energy Use in the U.K. Manufacturing Sector," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    6. Raja Chakir & Alban Thomas, 2003. "Simulated maximum likelihood estimation of demand systems with corner solutions and panel data application to industrial energy demand," Revue d'économie politique, Dalloz, vol. 113(6), pages 773-799.
    7. Bousquet, Alain & Ladoux, Norbert, 2006. "Flexible versus designated technologies and interfuel substitution," Energy Economics, Elsevier, vol. 28(4), pages 426-443, July.
    8. Arnberg, Soren & Bjorner, Thomas Bue, 2007. "Substitution between energy, capital and labour within industrial companies: A micro panel data analysis," Resource and Energy Economics, Elsevier, vol. 29(2), pages 122-136, May.
    9. Lundmark, Robert, 2005. "A comparison of approaches towards measuring technical change: the case of Swedish newsprint production," Forest Policy and Economics, Elsevier, vol. 7(4), pages 563-577, May.
    10. KITAMURA Toshihiko & MANAGI Shunsuke, 2016. "Substitution between Purchased Electricity and Fuel for Onsite Power Generation in the Manufacturing Industry: Plant level analysis in Japan," Discussion papers 16007, Research Institute of Economy, Trade and Industry (RIETI).
    11. Lundmark, Robert & Söderholm, Patrik & Lundmark, Robert, 2003. "Structural changes in Swedish wastepaper demand: a variable cost function approach," Journal of Forest Economics, Elsevier, vol. 9(1), pages 41-63.
    12. Raja Chakir & Alain Bousquet & Norbert Ladoux, 2004. "Modeling corner solutions with panel data: Application to the industrial energy demand in France," Empirical Economics, Springer, vol. 29(1), pages 193-208, January.
    13. Alain Bousquet & Raja Chakir & Norbert Ladoux, 2002. "Modeling Corner Solutions with Panel Data: Application to Industrial Energy Demand in France," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 C3-2, International Conferences on Panel Data.
    14. Lundmark, Robert, 2008. "Empirical specification of cost reductions associated with accumulated knowledge in the Swedish kraft paper industry," Forest Policy and Economics, Elsevier, vol. 10(7-8), pages 460-466, October.
    15. Lundmark, Robert & Soderholm, Patrik, 2004. "Estimating and decomposing the rate of technical change in the Swedish pulp and paper industry: A general index approach," International Journal of Production Economics, Elsevier, vol. 91(1), pages 17-35, September.
    16. Dong, Diansheng & Kaiser, Harry M. & Myrland, Oystein, 2003. "Estimation Of Censored La/Aids Model With Endogenous Unit Values," Research Bulletins 122119, Cornell University, Department of Applied Economics and Management.

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