Price Elasticity Of Supply Research Articles

Measuring Price Elasticities of Demand and Supply of Water Entitlements Based on Stated and Revealed Preference Data

Estimates of price elasticities of water entitlements (known as permanent water or water rights in the United States) are complicated by data limitations and problems of endogeneity. To overcome these issues, we develop an approach to generate stated preference data and combine them with revealed preference data to estimate price elasticities from various types of water entitlement sales in the southern Murray‐Darling Basin, Australia. Our results suggest that price elasticities of demand and supply of high security water entitlements are inelastic in the relevant market price range between AUD $1,700 to $2,100 per mega‐liter, and that supply is relatively more inelastic than demand. For lower reliability water entitlements, the price elasticity of demand is estimated to be even more inelastic than high security water entitlements. The price elasticity of supply for general security water entitlements is similar to high security water entitlements, while the supply of low reliability water entitlements is extremely inelastic for our data set. The comparison between the stated and revealed preference data provides strong evidence of support for a data fusion approach; nevertheless, some differences in water sale preferences were found for irrigators choosing not to sell all of their water. The consistency of our results signals support for the use of this methodology in other water basins around the world.

L'approvisionnement en bois brut dans un marché de concurrence imparfaite

Raw wood supply in a market with imperfect competition This contribution performs a supply analysis of the Swiss forest enterprises. It explores the factors influencing the quantity of supply, and determines the behavioral characteristics of the forestry firms. Based on econometric methods, the main characteristics of the firms in this strongly heterogeneous and changing sector are taken into account. Overall, the results suggest that Swiss forestry firms are not acting as profit maximizers. In fact, at least some of them, namely the smaller ones, seem to strive for a certain level of revenues, allowing them to cover their current costs (the so-called target revenue model), irrespective of their market position. Specifically, estimations indicate a negative price elasticity of supply, i.e., the quantity of wood supplied decreases with increasing prices. The intensity of this reaction depends on firm characteristics, such as type of ownership (private or public) and the size of the enterprise. Moreover, the results point to the existence of market power among larger forestry firms, which might be used in price negotiations with sawmills and other buyers.

The Role of Speculation in Real Estate Cycles

Our study investigates the role of speculation in real estate cycles. We find that even a simple model of lagged supply response to price changes and speculation is sufficient to generate real estate cycles. Second, the volatility of prices – the biggest purported downside of “speculation” – is strongly related to supply conditions. Even more interestingly, the effect of speculation itself depends on supply conditions. Markets with more responsive regulatory environments, or less natural constraint (from physical geography), will experience less volatility as well as less behavior characterized as speculation. Demand conditions in general, and speculation in particular, can contribute to a boom and bust cycle in housing and real estate markets – but the effects of speculation appear to be dominated by the effect of the price elasticity of supply. In fact, the largest effects of speculation are only observed when supply is inelastic. Thus effective policies will focus on improving the efficiency of the supply of developable land, and real estate generally, including the development of an appropriate regulatory framework for real estate.

Confronting Price Endogeneity in a Duration Model of Residential Subdivision Development

Spatial equilibrium in housing markets implies that distant factors are correlated with prices in specific (focal) neighborhoods through market mechanisms. Using this logic, we develop a novel approach for handling price endogeneity in a reduced-form land use model. We combine a control function approach with a duration model of optimal land development to shed light on the role of price and supply-side factors that influence subdivision development at a micro level. We find that failure to control for endogeneity results in large differences in estimates of residential land supply price elasticities. Specifically, we find an elasticity of 2.06 compared to 0.67 in a model that ignores endogeneity.

Housing Prices in Urban China as Determined by Demand and Supply

AbstractThis paper studies the demand for and supply of residential housing in urban China since the late 1980s when the urban housing market became commercialized. Using aggregated annual data from 1987 to 2012 in a simultaneous equations framework we show that the rapid increase in the urban residential housing price can be well explained by the forces of demand and supply, with income determining demand and cost of construction affecting supply. We find the income elasticity of demand for urban housing to be approximately 1, the price elasticity of demand to be approximately −1.1 and the price elasticity of supply of the total housing stock to be approximately 0.5. The resulting long‐run effect of income on urban housing prices in elasticity terms is approximately 0.7, because the increase in income has shifted the demand curve outward more rapidly than the supply curve.

Modelling the supply of new residential construction in Aberdeen, UK

Purpose – The purpose of this paper is to use local-level time series data to examine the determinants of housing starts and the price elasticity of supply for the Aberdeen local housing market. Design/methodology/approach – Seven time series models are used in the analysis. The basic model treats housing starts as a function of the changes of current and lagged house prices, interest rate and construction cost. The other six models which are extensions of the basic model include other variables like time on the market, planning constraints and future expectations. Findings – It is found that the local variables – changes in house prices, time on the market, planning regulation, lagged stock and lagged and future housing starts – are the main factors that influence new residential construction in Aberdeen. None of the national variables is significant, confirming the importance of limiting housing market analysis to the local level. The price elasticity of supply estimated is in the range of 2.0 to 3.2 for housing starts and 0.01 to 0.02 for housing stock. These estimates are higher than most of the elasticities for the other UK local markets. Originality/value – There is the need to better understand the supply of housing at the various local housing markets. Unfortunately, however, most housing supply studies use national data. Because national data are aggregation of local data, using national studies results for local markets may be uninformative. Also, the few existing local studies use typically cross-section data or at least time series over relatively short time spans. This paper makes an effort to use quarterly time series data over a 25-year period for a local market and also include a planning variable which is different from local markets and often ignored in national or regional studies.

House prices, housing development costs, and the supply of new single-family housing in German counties and cities

This paper investigates the determinants of new single-family housing supply in local housing markets in Germany, using construction permits as the dependent variable. The empirical estimations are based on a panel data-set for 413 German counties and cities spanning the time period of 2004–2010. Employing dynamic panel data analysis, the findings suggest that the local ratio of existing home prices to housing construction costs and past local permit rates act as important drivers of new local housing investment. The average long-run price elasticity of new single-family housing supply is considerably less than one, but sizeable differences exist across the urban hierarchy.

The future of oil: Geology versus technology

We discuss and reconcile the geological and economic/technological views concerning the future of world oil production and prices, and present a nonlinear econometric model of the world oil market that encompasses both views. The model performs far better than existing empirical models in forecasting oil prices and oil output out-of-sample. Its point forecast is for a near doubling of the real price of oil over the coming decade, though the error bands are wide, reflecting sharply differing judgments on the ultimately recoverable reserves, and on future price elasticities of oil demand and supply.

A method for calculating export supply and import demand elasticities

Frequently in applied work, researchers need to utilize values for price elasticities of import demand and export supply. Unfortunately, econometric estimates of these elasticities are limited, perhaps due to the difficulties inherent in estimating them. This paper uses a methodology for estimating price elasticities of import demand and export supply for 87 countries without using econometrics directly.

Research of Third-Party E-Commerce Risk and Measures

The paper proposed a method that endogenous two-sided network effects were proved in transaction services that the value of services to suppliers (buyers) increases with increasing number of buyers (suppliers) while decreases with increasing number of suppliers (buyers). Network led to the development pace of peoples lives, promote the development of online shopping and the rise of third-party payment platform. For more benefits, the platform owner must aim at transaction services of staple commodities with high price elasticity and large quantities of market supply and demand, while reducing the marginal usage costs of buyers and suppliers with effective measures.

The Third-Party E-Commerce Platform Based on the Trading Service

This paper presents a formal model of monopoly e-commerce platforms owned by a third party in spot trading modes using analyzing the transaction process and service supply chain relationship .for more benefits, the platform owner must aim at transaction services of staple commodities with high price elasticity and large quantities of market supply and demand, while reducing the marginal usage costs of buyers and suppliers with effective measures.

The differential effects of oil demand and supply shocks on the global economy

We employ a set of sign restrictions on the impulse responses of a Global VAR model, estimated for 38 countries/regions over the period 1979Q2–2011Q2, as well as bounds on impact price elasticities of oil supply and oil demand to discriminate between supply-driven and demand-driven oil-price shocks, and to study the time profile of their macroeconomic effects across a wide range of countries and real/financial variables. We show that the above identification scheme can greatly benefit from the cross-sectional dimension of the GVAR—by providing a large number of additional cross-country sign restrictions and hence reducing the set of admissible models. The results indicate that the economic consequences of a supply-driven oil-price shock are very different from those of an oil-demand shock driven by global economic activity, and vary for oil-importing countries compared to energy exporters. While oil importers typically face a long-lived fall in economic activity in response to a supply-driven surge in oil prices, the impact is positive for energy-exporting countries that possess large proven oil/gas reserves. However, in response to an oil-demand disturbance, almost all countries in our sample experience long-run inflationary pressures, an increase in real output, a rise in interest rates, and a fall in equity prices.

How do oil producers respond to oil demand shocks?

This paper analyzes the response of international oil producers to demand-induced changes in the price of crude oil during 1975–2011, focusing on potential differences between OPEC and non-OPEC countries. The goal is to derive consistent estimates of the short-run price elasticity of crude oil supply at the country level. I find that oil producers hardly respond to demand shocks within the same month, and that the corresponding impact price elasticities of supply are statistically indistinguishable from zero. While there is little evidence of differences in the dynamic responses to a typical flow demand shock, on average over the sample period, OPEC members seem to curtail production in response to a speculative demand shock, whereas non-OPEC production expands significantly. Flow and speculative demand shocks account for a nontrivial fraction of the total variability in country-level crude oil supply.

Monetary policies and oil price determination: an empirical analysis

AbstractWhile the oil price shocks of 1970s can be explained by pure supply factors, starting in the 1980s oil prices increasingly began to come under a different type of pressure. Oil prices accelerated from about $35/barrel in 1981 to beyond $111/barrel in 2011. At the same time interest rates subsided from 16.7 per cent per annum to about 0.1. This paper explains how this long‐term price increase was, in most cases, caused by expansionary monetary policies that heightened oil prices through interest rate channels. Aggressive monetary policies stimulated oil demand and blew up oil prices, a trend that led to slower economic growth. As for elasticities, the results described in this paper show that oil demand price elasticity is low value and unlike some earlier literature states, supply price elasticity is statistically significant. In last section, the results show that oil prices adjust instantly, declaring the existence of equilibrium in the oil market during the period from 1960 to 2011.

U.S. natural gas exports and their global impacts

We evaluate potential global impacts of increase in U.S. natural gas exports as a result of the shale gas boom. To our knowledge this is the first such analysis using a global economic model to understand this timely policy issue. Our primary conclusion is that world economic activity is higher through most of the simulation period [2014–2035] when U.S. natural gas exports rise. The overall U.S. results mirror the global ones, but the magnitude of income gains depends upon how the rate of increase and level of exports are determined, and the price elasticity of natural gas supply. The U.S. benefits more when export increases and levels depend on natural gas production rather than when they are pre-determined by assumption. The economic impacts on other natural gas importers and exporters can change as well based on how export levels are determined. The effects on natural gas prices, consumption, and production in individual countries vary with the scenarios and model parameter values.

U.S. Natural Gas Exports and Their Global Impacts

We evaluate potential global impacts of increase in U.S. natural gas exports as a result of the shale gas boom. To our knowledge this is the first such analysis using a global economic model to understand this timely policy issue. Our primary conclusion is that world economic activity is higher through most of the simulation period [2014-2035] when U.S. natural gas exports rise. The overall U.S. results mirror the global ones, but the magnitude of income gains depends upon how the rate of increase and level of exports are determined, and the price elasticity of natural gas supply. The U.S. benefits more when export increases and levels depend on natural gas production rather than when they are pre-determined by assumption. The economic impacts on other natural gas importers and exporters can change as well based on how export levels are determined. The effects on natural gas prices, consumption, and production in individual countries vary with the scenarios and model parameter values.

The Effect of Gender Wages and Working Age Populations on Fertility and House Prices

This paper presents an intertemporal model of household choice where endogenous in house prices play an important role in the effect of rising female relative wages on fertility. Households save for a deposit in young age, rear children and repay mortgages in middle age and sell housing in retirement. House prices are determined by a market for housing. The outcome from this model is that fertility: i. increases as female wages rise relative to male wages provided the price elasticity in housing supply is sufficiently high; ii. declines as female relative wages rise if housing supply is fixed; iii. declines as the working age to old age population ratio increases provided the housing supply price elasticity is less than the inverse of elasticity of house prices with respect to the support ratio. These results reconcile recent observations that fertility rebounds with rising house prices and female relative wages in several high income economies, but continues to decline in others and provide a novel mechanism whereby past demographic change impacts current fertility through house prices.

The cost of carbon dioxide abatement from state renewable portfolio standards

Renewable portfolio standards (RPSs) have become a popular tool for state governments to promote renewable electricity generation and to decrease carbon dioxide emissions within a state or region. Renewable portfolio standards are a policy tool likely to persist for many decades due to the long term goals of many state RPSs and the likely creation of a federal RPS alongside any comprehensive climate change bill. Even though RPSs have become a popular policy tool, there is little empirical evidence about their costs. Using the temporal and regional variation in RPS requirements, I estimate the long-run price elasticity of supply of renewable electricity generation to be 2.67 (95% CI of 1.74, 3.60). Using my preferred elasticity estimate, I calculate the marginal cost of abatement from RPSs is at least $11 per ton of CO2 compared to a marginal cost of abatement of $3 per ton in the Regional Greenhouse Gas Initiative.

No Price Like Home: Global House Prices, 1870–2012

How have house prices evolved over the long run? This paper presents annual house prices for 14 advanced economies since 1870. We show that real house prices stayed constant from the nineteenth to the mid-twentieth century, but rose strongly and with substantial cross-country variation in the second half of the twentieth century. Land prices, not replacement costs, are the key to understanding the trajectory of house prices. Rising land prices explain about 80 percent of the global house price boom that has taken place since World War II. Our findings have implications for the evolution of wealth-to-income ratios, the growth effects of agglomeration, and the price elasticity of housing supply. (JEL C43, N10, N90, R31)

Housing Bubbles and Busts: The Role of Supply Elasticity

Existing studies of the relationship between housing price dynamics and housing supply—which have relied upon questionable proxies for supply elasticity—have yielded highly mixed results. In this paper we provide new evidence on this relationship based on actual estimates of the price elasticity of supply for local markets in Florida. Intermarket differences in housing supply elasticity are found to explain much of the variation in housing price movements and new construction during the most recent boom-bust cycle. Additionally, we find that variance in the elasticity of housing supply can be attributed to differences in land availability and the local fiscal and regulatory environment. <i>(JEL R14)</i>