The role of allocation functions in energy modeling: A review

Abstract

In the recent past, there has been a proliferation of technical models developed to describe the relationships between and to forecast the levels of energy-related magnitudes. Although the models vary widely in their structural features and objectives, they share at least one common attribute: an energy allocation problem. That is, the models predict an aggregate level of energy usage (often by type) and policy decisions require this prediction be made at a disaggregate level — either with respect to components of the equilibrium quantity demanded or with respect to the quantity supplied. By distinguishing the various problems of disaggregation this paper evaluates four methodological approaches that are commonly utilized in representing the energy allocation problem in the production sector of energy models. These approaches are evaluated in the context of the neoclassical theory of production with special emphasis given to the problems posed by aggregation over both inputs and micro-units and the effects of the formulation of short-run versus long-run dynamics.