Policy implications of considering pre-commitments in U.S. aggregate energy demand system. (March 2017)

• Record Type: Journal Article
• Authors: Rowland, Christopher S.; Mjelde, James W.; Dharmasena, Senarath
• Is Part Of: Energy policy. Volume 102(2017)
• Page Start: 406
• Page End: 413
• Publication Date: 2017-03
• Subjects: Q41; Pre-commitments -- Energy demand -- Generalized Almost Ideal Demand System model -- Almost Ideal Demand System model; Energy policy -- Periodicals; Politique énergétique -- Périodiques; Electronic journals; 333.79
• DOI: 10.1016/j.enpol.2016.12.041
• Languages: English
• ISSNs: 0301-4215

Abstract

Abstract: Linear approximations of the Generalized Almost Ideal Demand System and Almost Ideal Demand System for U.S. energy are compared to contrast the explicit inclusion and exclusion of pre-committed consumption levels. Results indicate that pre-commitment levels, the quantity of a good that is consumed in the short run with little regard for price, helps to better explain energy demand in the U.S. compared to the system that does not explicitly consider pre-commitments. Policy implications are if pre-commitments are a legitimate assumption, larger price changes are necessary to achieve a given policy objective than if there are no pre-commitments. Highlights: Pre-commitments are the quantity that is consumed with little regard for price. Demand systems with pre-commitment levels better explain energy demand. Elasticities from assuming pre-commitments are more elastic. Estimated elasticities apply to discretionary and not pre-commitment consumption. Pre-commitments require larger price changes to achieve a given policy objective.