Estimates Of Own-price Elasticities Research Articles

Price responsiveness of solar and wind capacity demands

Accurate estimates of the price responsiveness of residential, commercial, and industrial electricity demands are essential for energy policy modelling, integrated resource planning, and determining a competitive wholesale electricity market's generation levels, prices, and capacity investments. Hence, we estimate the own-price elasticities of solar and wind capacity demands of a load serving entity (LSE) that provides retail electricity service, thereby answering two interrelated research questions: (1) does solar capacity demand far exceed wind capacity demand? and (2) are solar and wind capacity demands price-elastic? Inspired by the theory of input demand under input price uncertainty, our innovative methodology integrates (a) wholesale spot energy price forecasts by time of day; (b) pseudo data found by minimizing a LSE's annual risk-adjusted budget for procuring solar and wind capacities; and (c) econometric analysis of (b) to estimate the extent of substitutability between solar and wind capacities and the own-price elasticities of solar and wind capacity demands. Using Texas as an illustrative example, we find that when solar and wind power purchase agreements have similar energy prices, solar capacity demand is approximately four times wind capacity demand. Further, the own-price elasticity estimates are −5.34 for solar capacity demand and −5.65 for wind capacity demand. As a result, solar and wind capacity demands tend to substantially grow (shrink) in response to declining (rising) solar and wind energy prices. This lends support to proposals to raise solar and wind energy prices for mitigating the adverse effects of large-scale variable renewable energy development on an electric grid's efficient operation and system reliability. However, adopting such proposals also slows the grid's pace of decarbonization, thus underscoring the policy and regulatory challenges in the quest for a clean and sustainable electricity future. Hence, our policy recommendation of price managing solar and wind capacity demands is a topic of policy debate that deserves the attention of an electric grid's stakeholders.

Changes in the structure of household expenditure in urban and rural China

ABSTRACT In the last two decades, China has witnessed a remarkable change in household expenditure structure following the rapid growth of household income. Using provincial-level panel data from 2001 to 2019 and the Quadratic Almost Ideal Demand System model, we derive the expenditure elasticities, as well as uncompensated and compensated price elasticities, for urban and rural households. Our results suggest that food and clothing are ‘necessity’ goods, whereas residence, education, and transportation are ‘luxury’ goods for both urban and rural households. Household facilities and medical services are necessities for urban households, while they are luxuries for rural households. All own-price elasticity estimates are negative, indicating that no Giffen goods exist. We also observe temporal changes in the household expenditure structure over China’s Five-Year Plan cycles. Finally, we find significant differences in the own-price elasticity across the eastern, central, and western regions with varying levels of economic development.

An experiment in own-price elasticity estimation for non-residential electricity demand in the U.S.

This paper uses an experiment to identify what modeling decisions significantly affect estimates of own-price elasticity for non-residential (commercial and industrial) electricity demand in the United States (U.S.). Based on 174,240 panel data model runs involving 10,944 monthly state-level observations from the Energy Information Administration for 2001–2019, these decisions are parametric specification, estimation method, and treatment of cross-section dependence. As most of the many generated elasticity estimates are between 0.0 and −0.2, price-induced conservation is likely modest, thus justifying continued policy support for energy efficiency standards and demand-side management in the U.S. path to deep decarbonization.

The daily price and income elasticity of natural gas demand in Europe

Data from 15 European countries is analysed to provide novel estimates of daily own-price, cross-price and income elasticities of natural-gas-demand from 2016 to 2020. The results show that: first, there is a strong-seasonal component in the October–February period during which residential-demand has a higher share on total demand, and gas price is not a determinant factor for most of the countries. This seasonal profile makes price-based tools more effective modifying end-consumer behaviours from March to August when estimated own-price elasticities present larger values in absolute terms. Second, there are estimated positive own-price elasticities from October to February in Bulgaria, Luxemburg, Poland, the UK, and Portugal. The first four countries present natural gas prices below the EU-28 average during the analysed period and it is argued that positive elasticities may reflect a disconnection between the price traded on the organized markets and the real price perceived by end-customers. For Portugal, who is currently carrying out a very aggressive policy to become coal-free by the end of 2021, natural gas and coal are mainly consumed in power sector to provide flexibility and back up renewable generation. The limited alternatives to provide these services may explain why coal and natural gas are found to be complementary. Finally, it is found that lockdowns due to covid-19 highly impacted on natural gas demand, confirming for the first time in the literature a “double heating effect”. Our results help to find when price-based tools by policymakers will influence more effectively natural-gas-demand following economic and environmental goals.

Price and income elasticity of natural gas demand in Europe and the effects of lockdowns due to Covid-19

We analyse a panel of 25 European-countries to provide novel estimates of monthly own-price, cross-price, and income elasticities of natural-gas-demand from 2005 to 2020. We find that: first, there is an European Standard Behaviour (ESB) with a strong-seasonal component. Second, we identify three different patterns from the ESB: 1) France, Denmark and Estonia present slightly positive elasticities in the short-run and a lack of sensitivity to own-price variations in the long-run –we argue this phenomenon is due to a higher weight of heating demand-. 2) Latvia presents a lower sensitivity to own-price variations than the ESB -we argue due to the role of natural gas as a unique backup technology in the power sector-. 3) In Portugal, natural gas showed the highest own-price elasticities – we argue that natural gas is used mainly in the power sector with substitutive technologies-. Finally, we find that Covid-19-lockdowns highly impacted natural-gas-demand, confirming the “double-heating-effect”.

The impact of alcohol pricing policies on public health in Hong Kong, China: A modelling study

SummaryBackgroundContrary to most developed economies, Hong Kong has reduced and eliminated taxes on beer and wine over the last 15 years and observed increasing alcohol consumption.MethodsWe applied econometric epidemiological modelling to assess the impact of reverting ad valorem taxation to pre-2008 levels (20% on wine and 40% on beer) on consumption and health outcomes. We used 15 years of industry sales and pricing data (2004-2018) to derive 25 own-price and cross-price elasticity estimates. We applied risk functions from the World Health Organization 2018 Global Status Report to assess the impact on 25 alcohol-attributable conditions.FindingsAn estimated 616 deaths (91.3% in men) were attributable to alcohol in 2018. Raising taxes to pre-2008 levels is estimated to reduce consumption of pure alcohol consumption by 8.0%, 15.9%, and 31.1%; and reduce alcohol-attributable deaths by 11.6%, 21.8%, and 40.2% assuming 25%, 50% and 100% pass through rates of taxes to consumers. The largest projected decreases in alcohol-attributable mortality in absolute numbers are alcohol abuse, alcohol dependence, and alcoholic psychoses (wholly alcohol-attributable disorders). The largest absolute number of new alcohol-attributable cases in 2018 were hypertension, alcohol dependence and alcohol abuse; which are estimated to be reduced by 31.3%, 34.2%, and 34.3% respectively by raising taxes to pre-2008 levels. The alcohol-attributable health burden and absolute reductions in health harms are far greater in men.InterpretationReversing the 2008 alcohol tax reductions is potentially effective in averting the alcohol-attributable health burden and thus mitigate against the avoidable harms of alcohol-related disease.FundingHealth and Medical Research Fund, Food and Health Bureau of the Hong Kong SAR, China [03170067].

Price responsiveness of commercial demand for natural gas in the US

To estimate price responsiveness of commercial demand for natural gas in the US, we use five parametric specifications to conduct panel data analysis of a newly developed sample of 17,280 monthly observations for the lower 48 states in 1991–2020. We find that the US commercial natural gas demand is price inelastic, with statistically significant (p-value ≤ 0.05) static own-price elasticity estimates of −0.137 to −0.245, short-run −0.152 to −0.261 and long-run −0.281 to −0.463. These estimates vary by choice of a sample period, choice of a parametric specification, treatment of cross-section dependence, assumption of partial adjustment, and exclusion of fixed effects. Further, they vary by season and region and their size has been slowly declining over time. Finally, commercial natural gas shortage cost declines with the size of own-price elasticity estimates. The policy implications of these findings are: (a) price-induced conservation's likely limited effect on the US commercial natural gas demand justifies continuation of energy efficiency standards and demand-side-management programs for deep decarbonization; and (b) demand response programs such as real time pricing and reliability differentiation efficiently allocate limited supply of natural gas during a shortage among heterogenous end-users, thus reducing an economy's aggregate natural gas shortage cost.

How price responsive is commercial electricity demand in the US?

We use monthly data for the lower 48 states in the US and 30-year period of 1991–2020 to estimate commercial electricity demand’s price responsiveness. Our key findings are: (1) the US commercial electricity demand’s statistically significant (p-value ≤ 0.05) own-price elasticity estimates are between − 0.03 and − 0.08; and (2) the size of these estimates has been slowly declining over time. Hence, price-induced conservation is unlikely effective, at least in the immediate future, to materially reduce the US commercial electricity consumption, thus justifying continuation of energy efficiency standards and demand side management programs.

How price responsive is industrial demand for natural gas in the United States?

Our panel data analysis of the price responsiveness of industrial demand for natural gas in the United States utilizes five parametric specifications and 10,944 monthly observations for the lower 48 states in 2001–2019 to document statistically significant (p-value ≤ 0.05) static own-price elasticity estimates of −0.027 to −0.062, short-run −0.029 to −0.125, and long-run −0.060 to −0.179. These estimates with relatively small absolute values support the continuation of energy efficiency standards and demand-side-management programs for deep decarbonization. Further, diverse price responsiveness among heterogeneous industrial customers suggests using demand-response programs to efficiently allocate the limited supply available during a natural gas shortage.

Demand for tobacco products in Bangladesh

BackgroundTobacco tax increase is considered as one of the most effective means to reduce tobacco consumption and its consequences. An increase in taxes, which results in an increase in the...

When Industrial Policies Conflict With Population Health: Potential Impact of Removing Food Subsidies on Obesity Rates

ObjectivesTo model the potential impact on obesity of removing butter, cheese, and sugar subsidies in the Canary Islands. MethodsA simulation model was applied based on a local data set of subsidies and retail prices (2007-2016), data on own-price elasticity estimates, and representative nutritional and health surveys. We estimated marginal obesity prevalence and population attributable fraction to assess the potential impact of the butter, cheese, and sugar subsidies intervention. ResultsThe intervention was predicted to avoid 10 363 obese adults over the study period, because of the reduction of the obesity prevalence by -0.7 percentage points. Overall, the predicted effect was largest in elderly and male groups, although females with a low socioeconomic status experienced the greatest decrease in the prevalence. The population attributable fraction predicted that 4.0% of population with obesity were attributable to the existence of these subsidies. ConclusionsThis analysis provides policy makers with the predicted impact on obesity of the butter, cheese, and sugar subsidies disposal, enabling them to incorporate this health impact into decision making across policy areas in the economic and health field. This study aims to model the potential impact on obesity of removing industrial subsidies for butter, cheese and sugar in the Canary Islands.

Can Hong Kong price-manage its public transportation’s ridership?

This paper is motivated by the usefulness of own- and cross-price elasticity estimates in managing Hong Kong’s demand for public transportation. It uses a 12-year sample of monthly data from January 2006 to December 2017 to estimate a Generalized Leontief system of six mode-specific passenger volume regressions. Its key findings are: (1) the own-price elasticity estimates are −0.45 for taxi, −0.30 for minibus, −0.24 for bus, −0.23 for ferry, −0.06 for tram, and −0.07 for train (i.e., Mass Transit Railway); (2) the cross-price elasticity estimates are positive and smaller in size than the own-price elasticity estimates; and (3) the aggregate own-price elasticity estimate is −0.048 for the entire public transportation system. These findings of low price responsiveness imply that reducing public transportation fares and raising private transportation’s average usage cost will likely have a minimal impact on Hong Kong public transportation’s ridership. Hence, mitigating Hong Kong’s traffic congestion and vehicular emissions may require such policy measures as restricting private car ownership and improving Hong Kong public transportation’s non-fare attributes of accessibility and travel time performance.

Estimating Demand with Substitution and Intraline Price Spillovers

Problem definition: Standard choice models used to optimize product line prices are effective at capturing the effects of prices on the affordability of products but do not incorporate intraline price spillovers, or the effects of prices on consumer preferences for branded product lines. To date, no approach exists to measure such spillovers, and thus their existence and characteristics are subject to controversy. Academic/practical relevance: Different authors have proposed that different product line items, here referred to as known value items (KVIs), generate price spillovers. Yet product line prices and quality levels are typically highly correlated, and thus it is not clear which spillovers should be modeled. No empirical approach exists to test for multiple price spillovers simultaneously while controlling for quality spillovers. Methodology: This study proposes an empirical approach that includes a choice model to abstract rich demand patterns and an estimation algorithm that addresses the endogeneity and collinearity of KVI prices. An empirical application based on vehicle choice data illustrates how the approach can be implemented in practice and demonstrates the importance of modeling spillovers while yielding interesting managerial implications. Results: The results establish that different KVIs generate separate spillovers and illustrate their distinct roles. KVI price spillovers can be economically important, inducing large cross-price elasticities that range from −1.31 to 0.72. Furthermore, neglecting spillovers can bias own-price elasticity estimates by up to 15% and cross-price elasticities by more than 100%. Managerial implications: The empirical results generate KVI-specific insights that managers in the automobile industry can use to improve their pricing strategies. For other industries, the paper proposes an approach and an implementation algorithm that managers can use to estimate spillovers and optimize product line prices. The empirical application illustrates the implementation of the approach and shows how managers can model price spillovers to increase profits by almost 3%.

Complements of the house: Estimating demand-side linkages between residential water and electricity

Abstract Past studies have estimated residential demand for water and electricity in isolation, but these goods are often used as joint inputs in household production activities. As such, separately estimating electricity and water demand may lead to biased demand parameter estimates. If prices are positively correlated and goods are complements, ignoring cross-price effects will exaggerate own-price elasticity estimates, leading to inaccurate revenue and conservation forecasts. Moreover, understanding the water-electricity demand relationship will allow for synergistic conservation strategies. We propose a joint estimation procedure using 3-Stage-Least-Squares-Fixed-Effects (3SLS-FE) to highlight linkages between water and electricity and conclude that water demand, in particular, appears less own-price elastic when cross-prices are included in the demand system. Results from our study region suggest that water and electricity are gross complements (with an average cross-price elasticity of approximately − 0.1 ). A simple simulation is included to highlight how omitting cross-price elasticities may lead to inaccurate forecasting and suboptimal decisions.

U.S. Demand for Citrus Beverages

In 2017, the US was the second largest citrus producer with 711,000 bearing acreages and a 7.77 million MT production. Despite the US annual orange juice production decreased to 215,000 MT in 2017, per-capita domestic consumption increased to or remained above 41.75 lbs. With record low production levels and record high import levels over the last 17 years, it is important to obtain recent estimates of the US household demand for citrus beverages. This study uses the Almost Ideal Demand System (AIDS) and monthly data for the period of 2004-2018 from The Nielsen Company to estimate demand elasticities for various citrus beverages. Our Marshallian own-price elasticity estimates obtained the expected negative signs and were greater than one in absolute terms indicating that the US demands were price elastic. The Hicksian cross-price elasticity estimates indicated both complementary relationships and substitutability between the selected citrus beverages, while the expenditure elasticities indicated mostly normal goods. The study’s findings contribute with a better understanding of the citrus beverages market structure and provide insight into the consumer demand behavior. The estimated elasticities are useful for analyzing the US consumers’ responsiveness to price changes and for providing insight in agricultural marketing and policy related decisions.

Estimating Demand With Substitution and Intraline Price Spillovers

Standard choice models used to optimize product line prices are effective at capturing the effects of prices on the affordability of products but do not incorporate intraline price spillovers, or the effects of prices on consumer preferences for branded product lines. To date, no approach exists to measure such spillovers, and thus their existence and characteristics are subject to controversy. Different authors have proposed that different product line items, here referred to as known value items (KVIs), generate price spillovers. Yet product line prices and quality levels are typically highly correlated, and thus it is not clear which spillovers should be modeled. No empirical approach exists to test for multiple price spillovers simultaneously while controlling for quality spillovers. This study proposes an empirical approach that includes a choice model to abstract rich demand patterns and an estimation algorithm that addresses the endogeneity and collinearity of KVI prices. An empirical application based on vehicle choice data illustrates how the approach can be implemented in practice and demonstrates the importance of modeling spillovers while yielding interesting managerial implications. The results establish that different KVIs generate separate spillovers and illustrate their distinct roles. KVI price spillovers can be economically important, inducing large cross-price elasticities that range from – 1.31 to .72. Furthermore, neglecting spillovers can bias own-price elasticity estimates by up to 15% and cross-price elasticities by more than 100%.The empirical results generate KVI-specific insights that managers in the automobile industry can use to improve their pricing strategies. For other industries, the manuscript proposes an approach and an implementation algorithm that managers can use to estimate spillovers and optimize product line prices. The empirical application illustrates the implementation of the approach and shows how managers can model price spillovers to increase profits by almost 3%.

Differential Responses to Food Price Changes by Personal Characteristic: A Systematic Review of Experimental Studies.

BackgroundFiscal interventions to improve population diet have been recommended for consideration by many organisations including the World Health Organisation and the United Nations and policies such as sugar-sweetened beverage taxes have been implemented at national and sub-national levels. However, concerns have been raised with respect to the differential impact of fiscal interventions on population sub-groups and this remains a barrier to implementation.ObjectiveTo examine how personal characteristics (such as socioeconomic status, sex, impulsivity, and income) moderate changes in purchases of targeted foods in response to food and beverage price changes in experimental settings.DesignSystematic reviewData SourcesOnline databases (PubMed, EMBASE, Web of Science, EconLit and PsycInfo), reference lists of previous reviews, and additional data from study authors.Study SelectionWe included randomised controlled trials where food and beverage prices were manipulated and reported differential effects of the intervention on participant sub-groups defined according to personal characteristics.Data AnalysisWhere possible, we extracted data to enable the calculation of price elasticities for the target foods by personal characteristic.Results8 studies were included in the review. Across studies, the difference in price elasticity varied from 0.02 to 2.43 between groups within the same study. 11 out of the total of 18 comparisons of own-price elasticity estimates by personal characteristic differed by more than 0.2 between groups. Income related factors were the most commonly considered and there was an indication that own-price elasticity estimates do vary by income but the direction of this effect was not clear.ConclusionExperimental studies provide an opportunity to examine the differential effects of fiscal measures to improve population diets. Patterns in price sensitivity by personal characteristics are complex. General conclusions pertaining to the effects of personal characteristics on price sensitivity are not supported by the evidence, which shows heterogeneity between studies and populations.Trial RegistrationPROSPERO CRD42014009705

Specifying and Estimating a Regional Agricultural Railroad Demand Model

In recent years there have been few railroad demand studies. Also, no study has investigated the possibility of regional differences in railroad demand. The objective of the paper is to estimate railroad demand functions for wheat, corn, sorghum, and soybeans for the United States as well as the east and west regions. A two-region spatial equilibrium model is employed to specify the empirical model in which railroad tons originated is the dependent variable. The explanatory variables include railroad price per ton, crop production, and barge price per ton. The theoretically expected sign is negative for rail price. Alternatively, the expected sign is positive for crop production and barge rate. Results include estimates of railroad own-price elasticities and cross price elasticities relative to barge transport. The estimates also reveal regional differences in railroad grain demand.

Recent growth in China's roundwood import and its global implications

In recent years, China's booming economy has resulted in a rapid growth of its roundwood consumption. China has become the largest roundwood importer worldwide, with annual spending on imports over $10billion and the share in total world exports up to 38%. In this study, a Rotterdam demand system is employed to assess China's roundwood import demand by supplying source and product type between 1995 and 2012. Major findings are that the average expenditure share of China between 1995 and 2012 is 36% for coniferous roundwood, 17% for tropical roundwood, and 38% for other nonconiferous roundwood. China's imports have become diversified with more roundwood suppliers, including Russia, Malaysia, New Zealand, Gabon, and the United States. The estimates of expenditure and own-price elasticities for coniferous roundwood are small for most supplying sources. There is little competition within the coniferous roundwood group, but substitute or complementary relations exist across the four product groups by source. These findings are helpful for policymakers, industrial firms, and environmental groups to evaluate the impact of China's strong roundwood demand on economic development and environmental protection on a global scale.

Demand for Fresh Vegetables in the United States: 1970–2010

This paper analyzes a demand system for eight major fresh vegetables in the USA using the most recently available dataset (1970–2010). A first-differenced Linear Approximate Almost Ideal Demand System (LA-AIDS) is applied to estimate price and expenditure elasticity of demand, imposing homogeneity and symmetry restrictions. We find that not only are consumers responsive to changes in own-prices but they also respond significantly to changes in prices of other fresh vegetables that are consumed together. Conditional budget share allocation to lettuce, cabbage, and celery has declined, while the share of the consumer dollar going to tomatoes, peppers, and onions has increased over the period. Except for cabbage, all own-price elasticity estimates are negative, less than unity in absolute value, and statistically significant. About half of the 56 cross-price elasticities are negative and significant, indicating high, albeit asymmetric, complementarities among these fresh vegetables. Expenditure elasticities are positive and significant for all but one of these eight vegetables. Over the period under consideration, demand and expenditure elasticities remained fairly stable.