Modeling Energy and Non-Energy Substitution - A Survey of Elasticities

16 Pages Posted: 14 May 2011

See all articles by Manuel Frondel

Manuel Frondel

RWI Leibniz Institute for Economic Research ; Ruhr University Bochum (RUB)

Date Written: May 1, 2011

Abstract

Estimating the degree of substitution between energy and non-energy inputs is key for any evaluation of environmental and energy policies. Yet, given the large variety of substitution elasticities, the central question arises as to which measure would be most appropriate. Apparently, ALLEN’s elasticities of substitution have been the most-used measures in applied production analysis. In line with Frondel (2004), this paper argues that cross-price elasticities are preferable for many practical purposes. This conclusion is based on a survey of classical substitution measures, such as those from ALLEN, MORISHIMA, and MCFADDEN. The survey also highlights the fact that cross-price elasticities are their essential ingredients.

Keywords: Cross-price elasticities, Allen partial elasticities, Morishima elasticities

JEL Classification: C3, D2

Suggested Citation

Frondel, Manuel, Modeling Energy and Non-Energy Substitution - A Survey of Elasticities (May 1, 2011). Ruhr Economic Paper No. 256. Available at SSRN: https://ssrn.com/abstract=1832345 or http://dx.doi.org/10.2139/ssrn.1832345

Manuel Frondel (Contact Author)

RWI Leibniz Institute for Economic Research ( email )

Hohenzollernstr. 1-3
45128 Essen
Germany

Ruhr University Bochum (RUB) ( email )

Universitätsstraße 150
Bochum, NRW 44780
Germany

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