Threshold Effects of Energy Price Changes
22 Pages Posted: 30 Oct 2000
Date Written: September 5, 2000
This paper presents a theoretical model emphasising energy investments' characteristics of uncertainty and irreversibility. The theoretical model suggests threshold effects. Firms are induced to substitute away from energy only if prices of energy exceed a certain threshold level and they reverse the technology only if energy prices are low enough. Estimating a simple investment relation using panel data for the Dutch economy, we find evidence for threshold effects.
Keywords: threshold effects, energy substitution, environmental policy
JEL Classification: C23, D21, Q43
Suggested Citation: Suggested Citation