Accounting for differences in choice opportunities in analyses of energy expenditure
Working paper
Åpne
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http://hdl.handle.net/11250/180549Utgivelsesdato
2004Metadata
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Abstract:
Zero expenditure poses several challenges when estimating demand systems. Zero expenditure on
energy goods occur due to limited opportunity to consume the good or because the household
chooses not to use all available equipment (corner solution). In this paper we develop a method to
estimate an Almost Ideal Demand System (AIDS) of household energy demand simultaneously using
a Maximum Likelihood approach. The multivariate density of energy expenditures depends on the
consumption opportunity of the individual household. We model the choice of corner solutions by a
stochastic Kuhn-Tucker condition, and distinguish between zero expenditure due to limited
consumption opportunities and corner solutions by using a Double Hurdle model. We find that
accounting for zero expenditure in the estimation has a significant effect on the estimated
parameters. Assuming stochastic interdependence between expenditures on different energy goods
within the household, in addition to accounting for zero expenditure, has only a minor effect on the
estimated coefficients.
Keywords: Residential energy consumption, AIDS model with full price index, zero expenditure,
stochastic Kuhn-Tucker condition, double hurdle model, multivariate distribution.