Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/192382 
Year of Publication: 
2004
Series/Report no.: 
Discussion Papers No. 400
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
Zero expenditure poses several challenges when estimating demand systems. Zero expenditure on energy goods occur due to limited opportunity to consume the good or because the household chooses not to use all available equipment (corner solution). In this paper we develop a method to estimate an Almost Ideal Demand System (AIDS) of household energy demand simultaneously using a Maximum Likelihood approach. The multivariate density of energy expenditures depends on the consumption opportunity of the individual household. We model the choice of corner solutions by a stochastic Kuhn-Tucker condition, and distinguish between zero expenditure due to limited consumption opportunities and corner solutions by using a Double Hurdle model. We find that accounting for zero expenditure in the estimation has a significant effect on the estimated parameters. Assuming stochastic interdependence between expenditures on different energy goods within the household, in addition to accounting for zero expenditure, has only a minor effect on the estimated coefficients.
Subjects: 
Residential energy consumption
AIDS model with full price index
zero expenditure
stochastic Kuhn-Tucker condition
double hurdle model
multivariate distribution.
JEL: 
D12
Q41
Document Type: 
Working Paper

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