Modelling Time of Day Substitution Using the Second Moments of Demand.
by
Joseph G. Hirschberg.
March 1996
Department of Economics. University of Melbourne. Parkville Victoria
3052 Australia
ABSTRACT
Time of day (TOD) rates are a commonly used method for peak load pricing
of many services. Such services as; electricity, communications, transportation,
shared computer facilities, and computer networks (ie. the Internet); either
use, or will use, some form of TOD pricing. However, TOD rates do not ensure
a movement toward economic efficiency unless the patterns of TOD substitution
are known. The model presented here provides a method for estimating TOD
substitution without the need for rate experiments that have proven to
be both costly and limited by sample selection bias problems. This model
employs the estimated second moment of demand to estimate a matrix of relative
own-and cross-price elasticities and it can estimate elasticities even
when there is no apparent TOD price variation. The low level of computations
required for the estimates allows the application of a bootstrap procedure
to estimate the covariance matrix of the elasticities.
Two applications of this model are presented: a case of aggregate demand
for computer services and a case of an individual household's electricity
demand.
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