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Modeling Corner Solutions with Panel Data: Application to Industrial Energy Demand in France

  • Alain Bousquet

    (CEA-IDEI, Université des Sciences Sociales Toulouse I)

  • Raja Chakir


    (GREMAQ, Université des Sciences Sociales)

  • Norbert Ladoux

    (CEA-IDEI, Université des Sciences Sociales Toulouse I)

This paper is providing an initial empirical application of Lee and Pitt's approach to the problem of corner solutions with panel data. This approach deals with corner solutions in a manner consistent with behavioral theory. Furthermore it allows the use of flexible form cost functions and general error structure. In this model energy demand, at industrial plant level, is the result of a discrete choice of type of energy to consume and a continuous choice to define the demand level. The econometric model is essentially an endogenous switching regime model which require the evaluation of multivariate probability integrals. We estimate the random effect model by maximum likelihood using a panel of industrial French plants. We verify that estimations predict globally well the model and we simulate the effects of prices variations and a CO2 tax on energy demand.

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Paper provided by International Conferences on Panel Data in its series 10th International Conference on Panel Data, Berlin, July 5-6, 2002 with number C3-2.

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Date of creation: Mar 2002
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Handle: RePEc:cpd:pd2002:c3-2
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  1. Neary, J. P. & Roberts, K. W. S., 1980. "The theory of household behaviour under rationing," European Economic Review, Elsevier, vol. 13(1), pages 25-42, January.
  2. Bousquet, Alain & Ivaldi, Marc, 1998. "An individual choice model of energy mix," Resource and Energy Economics, Elsevier, vol. 20(3), pages 263-286, September.
  3. W. Erwin Diewert & T.J. Wales, 1989. "Flexible Functional Forms and Global Curvature Conditions," NBER Technical Working Papers 0040, National Bureau of Economic Research, Inc.
  4. Lee, Lung-Fei & Pitt, Mark M., 1987. "Microeconometric Models of Rationing, Imperfect Markets, and Non-Negativity Constraints," Bulletins 7470, University of Minnesota, Economic Development Center.
  5. Gary Chamberlain, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 225-238.
  6. James J. Heckman & Thomas E. Macurdy, 1980. "A Life Cycle Model of Female Labour Supply," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 47-74.
  7. Wales, T. J. & Woodland, A. D., 1983. "Estimation of consumer demand systems with binding non-negativity constraints," Journal of Econometrics, Elsevier, vol. 21(3), pages 263-285, April.
  8. Lee, Lung-Fei & Pitt, Mark M, 1986. "Microeconometric Demand Systems with Binding Nonnegativity Constraints: The Dual Approach," Econometrica, Econometric Society, vol. 54(5), pages 1237-42, September.
  9. G. S. Maddala, 1987. "Limited Dependent Variable Models Using Panel Data," Journal of Human Resources, University of Wisconsin Press, vol. 22(3), pages 307-338.
  10. Chiang, J. & Lee, L-F., 1990. "Discrete/Continuous Models of Consumer Demand with Binding Non-Negativity Constraints," Papers 261, Minnesota - Center for Economic Research.
  11. Boozer, Michael A., 1997. "Econometric Analysis of Panel Data Badi H. Baltagi Wiley, 1995," Econometric Theory, Cambridge University Press, vol. 13(05), pages 747-754, October.
  12. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
  13. Mark M. Pitt & Daniel L. Millimet, 1999. "Estimation of Coherent Demand Systems with Many Binding Non-Negativity Constraints," Working Papers 99-4, Brown University, Department of Economics.
  14. Maddala,G. S., 1986. "Limited-Dependent and Qualitative Variables in Econometrics," Cambridge Books, Cambridge University Press, number 9780521338257.
  15. Schmidt, Peter, 1990. "Three-stage least squares with different instruments for different equations," Journal of Econometrics, Elsevier, vol. 43(3), pages 389-394, March.
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