Short-run Price Elasticity Of Demand Research Articles

An empirical analysis of e-cigarette addiction

ABSTRACT This paper examines the role of addiction in influencing the demand for e-cigarettes using the Nielsen Retail Scanner Data and the Nielsen Consumer Panel Data between 2012 and 2017. With a comparison of a myopic addiction model, a forward-looking model, and a rational addiction model, this paper tests whether the consumption of e-cigarettes is addictive and rational. Results from both the macro data and the microdata support the rational addictiveness of e-cigarettes. Applying an OLS method and an instrumental variable method in causal inference, results show that the long-run price elasticity estimates are larger than the estimates of the short-run price elasticity of demand for e-cigarettes. Estimates of both long-run and short-run elasticities are greater than one, −1.50 and −1.05, suggesting e-cigarette demand is elastic in both the long run and short run.

Once bitten, twice shy? Lessons learned from an experiment to liberalize price regulations for dental care

In 2012, The Netherlands established the so-called “free market experiment”, which allowed providers of dental care to set the prices for their dental services themselves. The introduction of market mechanisms is intended to improve the quality of care and to contribute to cost containment, but increasing health expenditures for citizens have been observed in this context. Using large-volume health insurance claims data and exploiting the 2012 experiment in Dutch dental care, we identified the effects of a liberalization of service prices. Using pooled regression with individual fixed effects, we analyzed changes in utilization patterns of prevention-oriented dental services in response to the experiment as well as the elasticities in demand in response to variations in out-of-pocket (OOP) prices. We found substantial increases in prices and patients’ OOP contributions for dental services following the liberalization with differences in increases between types of services. In response to the experiment, the proportion of treatment sessions containing preventive-oriented services decreased significantly by 3.4% among adults and by 5.3% for children and adolescents. Estimates of short-run price elasticities of demand for different services point towards differences in price sensitivity. One potential explanation for the observed variations in prices and utilization could be different extents of asymmetric information for first-stage and follow-on services. Price liberalization seems to have affected the composition of treatment sessions towards a decreasing use of preventive services, suggesting a shift in the reason for seeing a dental care provider from a regular-preventive perspective to a symptom-based restorative approach.

О ценовой эластичности спроса на электроэнергию

The paper provides the econometric estimates of short-run and long-run price elasticities of electricity demand for different categories of customers. Both for residential and for non-residential sectors the estimates (in absolute value) of short-run price elasticity are low, while the estimates of long-run price elasticity are high. Consequently, long-run projections of electricity demand under expectations of increase of energy prices should take into account the long-run price elasticity. The estimates of short-run price elasticity for non-residential sector can be used in models of imperfect competition in the electricity market, under a number of assumptions, such as the absence or weak attention of the regulator, when possible strategies of economic agents (such as electricity suppliers in the spot market) may depend on the short-run price elasticity of demand.

Household Response to Time-Varying Electricity Prices

The diffusion of smart metering technology and intermittent renewable electricity generation capacity makes the deployment of time-varying electricity rates increasingly feasible and important to the functioning of electricity grids. Such rates, which economists advocate to more efficiently match supply and demand, remain rare, though experiments assessing consumer responses are not. This review synthesizes evaluations of these experiments in the context of a theory of consumer inattention and adjustment costs that posits a role for automation technology to boost the short-run price elasticity of demand and affect demand-side reductions that can lower generation costs.

Short Run Price Elasticity of Demand for Energy in the US

We propose using cost shifters as valid instruments for the estimation of short-run price elasticity of demand for residential electricity. We argue that most of the previous studies do not address the endogeneity of price in the demand equation and hence suffer from simultaneity bias. Furthermore, we argue that using lagged prices or consumption as instruments clearly violates the exclusion restriction and overstates the magnitude of the short-run elasticity of demand. We propose using the price of coal and natural gas as instruments, since they are two of the most important inputs in the production of electricity in the U.S. We are able to estimate much smaller magnitudes of price elasticity, which implies that in the short run consumers are much less responsive to changes in prices than previously believed. Policies based on previous (higher) estimates are likely to take longer time to be effective, since these estimates are confounding short-run and long-run consumer responses to price changes.

Modeling short-run electricity demand with long-term growth rates and consumer price elasticity in commercial and industrial sectors

This paper specifies and estimates state-level models of short- and long-term electricity demand in the United States. The short-term model predicts hourly load based on weather and calendar inputs. The long-term model estimates interannual demand, and includes population, prices, and gross state product as predictors. These models are combined to incorporate the short- and long-term trends in electricity consumption when generating forecasts of diurnal patterns into the future. Finally, the authors investigate the effects of short-run price elasticities of demand. The short-term model is shown to be within 95% accuracy of actual levels in out-of-sample tests.

Multiple Dimensions of Cigarette Smoking and Responsiveness to Cigarette Price Changes in Taiwan

This study investigates how smokers respond to both short- and long-run changes in the price of cigarettes in multiple dimensions of smoking behavior. Using a sample of males from a national longitudinal survey in Taiwan, we estimated the demand for cigarettes under both short- and long-run specifications using a quality-purged price index. We found a modest short-run price elasticity of demand for cigarettes and a long-run elasticity of demand that did not significantly exceed the short-run elasticity. We also found that smokers responded to higher cigarette prices by smoking each cigarette more fully without changing their choices of tar and nicotine content to compensate for reduced cigarette consumption.

Elasticity of demand for relative petroleum inventory in the short run

To better understand petroleum markets, the authors established the importance of the deviation of inventory levels away from a normal level, where the normal level is comprised of seasonal movement and a general trend. Since supply and demand for petroleum are less elastic to price in the short run than is inventory, it is this deviation or relative inventory level that plays the role of absorbing unexpected shifts in demand and supply. They demonstrated theoretically that the demand for relative inventory must be negatively related to price. They estimated the relative inventory levels and associated short-run price elasticity for several OECD countries and groups of countries, and found that short-run price elasticity of demand for relative inventory is negative and statistically significant, supporting the theoretical arguments.

Environmental defensive expenditures and households behaviour in Italy

The paper explores the role of Environmental Defensive Expenditures in the consumption behaviour of Italian households. Environmental Defensive Expenditures are not borne to increase households' welfare, but to prevent or avoid the effects of a worsening environmental quality. The literature on environmental accounting argues that economic growth in industrialized countries is accompanied by an increasing load of defensive activities that may lead to a reorientation of consumption behaviour. In this work this hypothesis is tested using annual data on mean consumption expenditures of Italian households from 1985 to 1996. A complete system of demand is estimated and short-run price elasticities of demand for Defensive Expenditures are calculated. The complete system of demand functions is specified using the Quadratic Almost Ideal Demand System proposed by Banks, Blundell and Lewbel. Results show that there is very low substitution between the demand for the six aggregate goods in which total expenditure is here divided and the Environmental Defensive Expenditures. Thus it seems that an increase in Environmental Defensive Expenditures, driven by a change in environmental quality, would not lead to a change in the consumption pattern, at least as far as Italian households are concerned.

Determinants of the demand for Thailand's exports of tourism

We investigate the effects of world income and the relative price of tourism in Thailand on Thailand's exports of tourism. In contrast to previous studies, we test for stationarity and cointegration of the variables of the model. We find that the variables are not stationary in level form, but they are cointegrated. Our estimate of the relative price elasticity of demand for Thailand's exports of tourism is - 1.199 in the short run and - 0.891 in the long run. The corresponding estimates for the income elasticity of demand are 1.926 and 2.342 respectively. However, only the short-run price elasticity of demand is significantly different from zero.

Invisible inventories: the case of copper

Most metal stocks held by fabricators and other users go unreported, and consequently variations in these stocks are recorded as changes in metal consumption. This article, using copper as an example, proposes a methodology for quantifying movements in these invisible inventories and thereby for improving the available data on copper consumption. It contends that the true level of copper consumption is largely determined by industrial production, and as a result the error term for a regression of reported copper consumption or industrial production and other relevant variables can provide an approximation of invisible stock movements. The results, though tentative, indicate that invisible stocks move procyclically with expansions and contractions amounting to 10–15% of annual consumption over the business cycle. This suggests that actual copper consumption varies less over the business cycle than indicated by the reported data, and that short-run price elasticities of demand estimated on the basis or reported copper consumption are probably biased toward zero. Estimated changes in invisible inventories also help explain why copper prices rose in 1987, rather than two to three years earlier as was widely expected on the basis of reported inventory movements, and why the rise in price persisted for several years.

A compact model of oil supply disruptions

We have developed a model of oil price jumps caused by oil supply disruptions. The core of the model is a compact general equilibrium model of oil demand. Given an exogenous forecast of oil supply and potential GNP for the world, the model can forecast the oil price, real GNP, and value added for the world. The data base for the model consists of historical time series of world oil supply, world oil price, and growth rates for world GNP. The data demonstrate that small changes in oil supply are associated with large changes in oil price. If a large change in oil price causes a small change in oil consumption, the short-run price elasticity of demand must be small. We have specified a model with a short-run and a long-run price elasticity. The six parameters in the model have been estimated using historical data for three cases. The initial model had five parameters. For Case 1, we used a search procedure to determine the parameters that minimized the root mean square (RMS) of the differences between the price backcast by the model and the historical data on oil price. We found that the RMS error was 121% and that the price calculated by the model was too low for the period from 1974 to 1980. After a review of the historical data on oil consumption, oil price, and world GNP, we concluded that the response of the world oil market to the 1974 oil price shock was different than the response to the 1979-80 oil price shock. After the jump in oil price from 1973 to 1974, the consumption of oil decreased in 1975 but quickly recovered and reached a peak in 1979. After the jump in oil price from 1978 to 1980, the consumption of oil declined steadily for four consecutive years. To improve the model's capacity to simulate the historical data, we introduced a technological change factor that increases the demand for oil in the period from 1971 to 1979. For Case 2, the rate of technological change is 3.8% and the RMS error is 35%. For Case 3, the rate of technological change is 7.0% and the RMS error is 29%. Although Case 3 has the smallest error, we concluded that the Case 2 set of parameters provided the best match for the historical data on world oil price. For Case 2, we find a small short-run elasticity ( − 0.09), a substantial long-run elasticity ( − 0.92), and a lag of 0.08, which corresponds to 12 years. We have invented an oil price scenario that is similar to the historical data and have determined the corresponding oil supply scenario for the Case 2 set of parameters. We have investigated the impact of an increase or decrease of five million barrels per day in 1998.

An Estimate of the Short-Run Price Elasticity of Demand for Fryers

An Estimate of the Short-Run Price Elasticity of Demand for Fryers