Price Asymmetry In Energy Demand Models: A Proxy for Energy-Saving Technical Change?

Abstract

It has become fashionable to believe that energy and oil demand respond asymmetrically to price increases and decreases. Unfortunately, the asymmetric price model utilized by Gately and others has the unintended by-product of producing intercept shifts in the demand function purely in response to price volatility. Thus what is in fact energy saving technical change is attributed to price asymmetry. The two become observationally equivalent. Furthermore, the asymmetric price model has the peculiarity of being dependent on the starting point of the data period so that parameter estimates are not robust across different sample periods. We demonstrate empirically using a panel of OECD countries for oil and energy demand that symmetric price responses cannot be rejected after explicitly controlling for energy saving technical change within a fixed effects model.

A theory of price adjustment under loss aversion

“…κ = δ γ . The empirical literature on loss aversion in prices finds that losses induce demand reactions approximately twice as large as gains (Tversky and Kahnemann, 1991;Putler, 1992;Hardie et al, 1993;Griffin and Schulman, 2005;Adeyemi and Hunt, 2007). Therefore, we set κ = 2.…”

“…Kalwani et al (1990), Mayhew and Winer (1992), Krishnamurthi et al (1992), Putler (1992), Hardie et al (1993), Kalyanaram and Little (1994), Raman and Bass (2002), Dossche et al (2010), and many others find evidence for consumer loss aversion with respect to many different product categories available in supermarkets. Furthermore, loss aversion in prices is also well documented in diverse activities such as restaurant visits (Morgan, 2008), vacation trips (Nicolau, 2008), real estate trade (Genesove and Mayer, 2001), phone calls (Bidwell et al, 1995), and energy use (Griffin and Schulman, 2005;Adeyemi and Hunt, 2007;Ryan and Plourde, 2007).…”

An empirical analysis of energy demand in Namibia

“…This may lead to misleading results since due to local import duties, consumer taxation, subsidy and cross-subsidy schemes, most consumers may not experience the level of, or changes in, world market prices (see also Griffin and Schulman, 2005). An equally important weakness in many energy studies is the use of average rather than marginal prices (Woodland, 1993).…”

US residential energy demand and energy efficiency: A stochastic demand frontier approach

“…The results of the estimation are presented in Section 4, with a summary and conclusion in the final section. 9 As advocated by Hunt et al (2003a and2003b) 10 As proposed by Griffin and Schulman (2005) and Adeyemi and Hunt (2007). 11 The UEDT implicitly includes exogenous technical progress of the appliance and building stock and it could be argued that even though technologies are available to each state they are not necessarily installed at the same rate.…”