Methodologies for Estimating Short-Run Industry Demand Elasticities for Petroleum Products

摘要

This paper describes two methodologies for estimating industry demand elasticities for energy and its constituent fuels. These models though derived for analyzing the structure of demand for the energy sector as a whole, are applicable to estimating short-run demand elasticities for petroleum products. The methodologies described are labeled the Fuel Choice Model and the Energy and Factor Choice Model. Fuel Choice for industry is modeled as a conditional logit problem where the consumption of each fuel is given relative to the consumption of a base fuel as a function of industry output, relative fuel prices, and other relevant variables. The Energy and Factor Choice model treats the industrial energy demand as a derived factor demand where the factor inputs (including capital, labor, and other materials) are chosen to minimize the total cost of production given as a translogarithmic cost function. The fuel shares are chosen to minimize the total cost of energy. The description of each model is followed by the exposition of the econometric techniques most suited for estimating the model parameters and a note on data requirements and sources. (ERA citation 07:044037)