Knowledge that Transforms

Robert Archibald, Robert Gillingham, An Analysis of the Short-Run Consumer Demand for Gasoline Using Household Survey Data, The Review of Economics and Statistics, Vol. 62, No. 4 (Nov., 1980), pp. 622-628

An attempt has been made to improve upon existing specifications and estimations of freight demand by treating transportation as an input in the production process and estimating the derived input demand equations for rail and trucking associated with a general translog cost function. This estimation method also recognizes that rates and shipment characteristics are jointly dependent and takes this inter dependence into account in estimating the demand functions. Two tentative conclusions emerge from the findings of this paper. First, at least with respect to less-than-truckload (LTL), rail and truck transportation are largely independent. Therefore, relatively little modal misallocation of resources between rail and LTL trucking should result from ICC policies that attempt to maintain the value of service pricing structure. Second, the estimated own price elasticities of demand for rail services were sufficiently high to indicate that the railroads might not benefit from blanket rate increases but could benefit instead from selective rate cutting. It is noted that the unique methodology employed and the empirical findings described in this paper need to be verified using different data and different time periods.

The ease with which energy may be substituted for by other types of inputs is of great importance in predicting economic disruptions arising from energy shortages as well as the energy implications of public policy. Studies of energy substitution in the economies of developed countries have produced differing results. A major reason for the divergent results, according to the authors, could be that two quite-different types of capital inputs - physical capital and working capital - have been used. These two types of capital input behave in quite-different ways, at least as regards their relationship with energy inputs to explore this, the authors incorporated the prices of physical capital, working capital, labor, and energy in a constant-returns-to-scale cost function. The authors conclude that reproducible capital and energy are, for the most part, complements - while working capital and energy are largely substitutes in production. Results lead the authors to explain the differences among previous studies by reference to the way in which the capital input was handled. On the level of aggregate US manufacturing a value-added approach to capital cost would be expected to show capital-energy substitutability, while a service-price approach to capital cost would show complementarity. 21 references, 2more » tables (SAC)« less

DISAGREEMENT about the responsiveness of housing demand to variations in relative prices persists, despite extensive empirical analyses. Two factors underlie this disagreement: the multidimensional character of housing makes direct observation of prices (as distinct from expenditures) impossible; and, the significant search, transactions, and moving costs associated with changing dwellings imply that, at any instant, a given household's consumption may deviate significantly from its utility maximizing level in a static equilibrium. While a number of ingenious attempts have been made to circumvent these problems, each is quite indirect and relies upon strong, and untestable, assumptions (cf. Mayo (1978)). This paper provides direct estimates of price elasticities, based upon an explicit model of housing consumption dynamics and utilizing the experimental manipulations of housing prices incorporated in the Housing Allowance Demand Experiments.1 While the data are limited to two years of longitudinal data and pertain only to low income renters, they nevertheless permit the direct estimation of this key parameter of housing demand. This analysis focuses on the price responsiveness of households, but clearly other changes in household circumstances (such as in income or family size) affect desired housing consumption. In fact, given the limited longitudinal data, information about other demand adjustments provides valuable insights into consumption dynamics. Price changes can be viewed as but one of a variety of exogenous influences on housing demand. A complete structural model of housing demand would consider the joint influence of household preferences, relocation costs, and prices on search and moving behavior and, conditional on this, their subsequent influence on housing consumption. However, both household preferences and relocation costs are generally unobserved, and estimation of such a complete model is simply beyond our current capabilities. We concentrate upon the more modest goal of modelling the reduced form relationship between housing consumption and housing stock disequilibrium (defined below). Consumption dynamics are represented by variants of a linearized stock adjustment process . This formulation is based on the simple observation that adjustments will generally be a monotonic function of the magnitude of disequilibrium in housing consumption. As indicated by past work (Hanushek and Quigley, 1979), this is both a convenient and powerful characterization of short run dynamics. Two basic formulations of consumption dynamics are considered. Let Htd represent the desired, or static equilibrium, quantity of housing demanded by a given household, and let Ht be the actual (observed) housing consumption at time t. In the simplest form, households are assumed, on average, to close the gap between desired and equilibrium housing consumption at a constant rate a, so that