Upward Sloping Demand for a Normal Good? Residential Electricity in Arkansas

Thomas Fullerton (), Ileana M. Resendez and Adam G. Walke
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Ileana M. Resendez: Heifer International, 1 World Avenue, Little Rock, AR 72202, USA
Adam G. Walke: Department of Economics & Finance, University of Texas at El Paso, El Paso, TX 79968-0543, USA

International Journal of Energy Economics and Policy, 2015, vol. 5, issue 4, 1065-1072

Abstract: This study analyzes residential electricity demand in the state of Arkansas using an error-correction approach that examines both long-run and short-run dynamics. As in prior studies, results indicate that higher electricity prices reduce consumption in the long-run, but not in the short-run. With respect to variations in household income, residential electricity is treated as a normal good. The long-run income elasticity estimate is about twice as large as the short-run estimate. It is suggested that the muted short-run responses to price and income variables may reflect limited capacity to adjust the stock of electricity-consuming household devices over the short-term. More surprisingly, households are found to treat electricity as a normal good in the short-run, but have an upward sloping demand curve associated with it. The overall results suggest that increasing generating capacity in Arkansas will be feasible using the standard approach of incremental rate increases.

Keywords: Residential Electricity Consumption; Regional Economics; Business Economics (search for similar items in EconPapers)
JEL-codes: M21 Q4 R15 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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