Abstract
Abstract This paper derives fuel-demand equations from a translog profit function, permitting the estimation of elasticities of demand and substitution that are subject only to those restrictions implied by economic theory. The estimated elasticities indicate substantial interfuel substitution in the generation of electric energy. The finding that changes in fuel prices have significant short-run effects on fossil fuel consumption has important implications for public policy. Specifically, the market system appears better able to deal with exogenous shifts in energy supplies than has frequently been assumed in the formulation of public policies toward the energy crisis.
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