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Household Energy Elasticities in Pakistan: An Application of the LA-AIDS Model on Pooled Household Data

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  • Muhammad Irfan

    () (University of Waikato)

  • Michael P. Cameron

    () (University of Waikato)

  • Gazi Hassan

    () (University of Waikato)

Abstract

This study aims to estimate the fuel expenditure and price elasticities of household fuels in Pakistan. Burning of wood, animal dung, and crop residues are harmful to health and may cause preventable morbidity and mortality in developing countries. Forests, natural gas and other energy reserves are depleting. It is important to investigate how households’ fuel choices are linked to prices, so that governments can consider appropriate steps to enhance the consumption of clean fuels and discourage the use of solid fuels. In this paper we pooled three Pakistan Social and Living Standard Measurement Survey (PSLM) data sets (2007-08, 2010-11 and 2013-14) and applied the Linear Approximate Almost Ideal Demand System (LA-AIDS) model to investigate the price and expenditure elasticities at urban, rural, and national levels. We found that all fuel types except natural gas were price inelastic at the national level and for urban households, implying that changes in prices lead to comparatively lesser changes in quantity demanded of most fuels. In rural areas, natural gas and LPG were found to be more price elastic compared with urban areas. Fuel expenditures elasticities for all fuels were found to be positive and between zero and one. Simple policy simulations based on our results suggest that in order to reduce the indoor air pollution, governments should subsidise clean fuels rather than imposing taxes on solid fuels.

Suggested Citation

  • Muhammad Irfan & Michael P. Cameron & Gazi Hassan, 2017. "Household Energy Elasticities in Pakistan: An Application of the LA-AIDS Model on Pooled Household Data," Working Papers in Economics 17/11, University of Waikato.
  • Handle: RePEc:wai:econwp:17/11
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    References listed on IDEAS

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    Cited by:

    1. Muhammad Irfan & Michael P. Cameron & Gazi Hassan, 2018. "Interventions to Mitigate Indoor Air Pollution: A Cost-Benefit Analysis," Working Papers in Economics 18/14, University of Waikato.

    More about this item

    Keywords

    household energy; elasticities; LA-AIDS; Pakistan;

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • P28 - Economic Systems - - Socialist Systems and Transition Economies - - - Natural Resources; Environment
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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