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Costly Capital Reallocation And Enery Use

  • María Dolores Guilló

    ()

    (Universidad de Alicante)

  • Antonia Díaz

    (Universidad Carlos III de Madrid)

  • Luis A. Puch

    (Universidad Complutense de Madrid)

In time series data, energy use does not change much with energy price changes. However, energy use is responsive to international differences in energy prices in cross-section data across countries. In this paper we consider a model of energy use in which production takes place at individual plants and capital can be used either to directly produce output or to reduce the energy required to run the plant. We assume that reallocating capital from one use to another is costly. This turns out to be crucial for the quantitative properties of the model to be in conformity with the low short-run and high long-run elasticities of energy use seen in data.

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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2002-14.

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Length: 40 pages
Date of creation: Jul 2002
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2002-14
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