IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/8329.html
   My bibliography  Save this paper

Energy-Capital Substitution: A General Equilibrium Analysis

Author

Listed:
  • Chichilnisky, Graciela
  • Heal, Geoffrey

Abstract

We consider an economy which imports energy from a monopolistic price-setter. The domestic general equilibrium of this economy adjusts in response to the price of energy. We define the total cross price elasticity of demand between energy and capital as the cross price elasticity across general equilibria of the economy, as the equilibrium changes in response to energy price changes. This corresponds to the price elasticity given by a total demand curve, and incorporates adjustments on both supply and demand sides. It is shown that whether this total elasticity implies energy-capital complementarity or substitutability depends upon the parameters of the model and the price of energy: for a given model, there may be a change from substitutability to complementarity as the price of energy rises. This framework offers an additional way of reconciling apparently conflicting findings on energy-capital complementarity and substitutability: an earlier suggestion was made by Berndt and Wood (1979). It is a natural extension of the general equilibrium approach initiated by Hogan (1977).

Suggested Citation

  • Chichilnisky, Graciela & Heal, Geoffrey, 1993. "Energy-Capital Substitution: A General Equilibrium Analysis," MPRA Paper 8329, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:8329
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/8329/1/MPRA_paper_8329.pdf
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Berry, R. Stephen & Salamon, Peter & Heal, Geoffrey, 1978. "On a relation between economic and thermodynamic optima," Resources and Energy, Elsevier, vol. 1(2), pages 125-137, October.
    2. H. S. Houthakker, 1955. "The Pareto Distribution and the Cobb-Douglas Production Function in Activity Analysis," Review of Economic Studies, Oxford University Press, vol. 23(1), pages 27-31.
    3. Akerlof, George A. & Burmeister, Edwin, 1970. "Substitution in a general equilibrium framework," Journal of Economic Theory, Elsevier, vol. 2(4), pages 411-422, December.
    4. Griffin, James M & Gregory, Paul R, 1976. "An Intercountry Translog Model of Energy Substitution Responses," American Economic Review, American Economic Association, vol. 66(5), pages 845-857, December.
    5. Berndt, Ernst R & Wood, David O, 1979. "Engineering and Econometric Interpretations of Energy-Capital Complementarity," American Economic Review, American Economic Association, vol. 69(3), pages 342-354, June.
    6. Hahn, Frank H, 1977. " Exercises in Conjectural Equilibria," Scandinavian Journal of Economics, Wiley Blackwell, vol. 79(2), pages 210-226.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Thompson, Henry, 2006. "The applied theory of energy substitution in production," Energy Economics, Elsevier, vol. 28(4), pages 410-425, July.
    2. Koetse, Mark J. & de Groot, Henri L.F. & Florax, Raymond J.G.M., 2008. "Capital-energy substitution and shifts in factor demand: A meta-analysis," Energy Economics, Elsevier, vol. 30(5), pages 2236-2251, September.
    3. Chichilnisky, Graciela, 1986. "Trade and development in the 1980s," MPRA Paper 8035, University Library of Munich, Germany.
    4. Hokky Situngkir, 2004. "Inequality And Oil Subsidy In Indonesia," Macroeconomics 0405004, EconWPA.
    5. repec:eee:appene:v:212:y:2018:i:c:p:691-703 is not listed on IDEAS

    More about this item

    Keywords

    price elasticity; substitutability; complementarity; energy; energy prices; general equilibrium; monopoly;

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:8329. 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: (Joachim Winter). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.