Dynamic translog and linear logit models: a factor demand analysis of interfuel substitution in US industrial energy demand

• Published in: Energy economics Vol. 25; no. 1; pp. 1 - 21
• Main Authors: Urga, Giovanni, Walters, Chris
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 2003; Elsevier Science; Elsevier; Elsevier Science Ltd
• Series: Energy Economics
• Subjects: Applied sciences; Cost function; Demand; Dynamic cost functions; Dynamics; Economic data; Economic models; Economic theory; Economics; Energy; Energy economics; Exact sciences and technology; Fuels; General, economic and professional studies; Interfuel substitution; Logit; Methodology. Modelling; Studies; Translog; U.S.A; United States; North America; America; Interfuel substitution; Dynamic cost functions; Logit; D2; C2; Translog; Energy source; Substitution; Fuel; Energy economy; Cost function; Energy demand; Logit model; Secondary sector; Dynamic model; Comparative study
• ISSN: 0140-9883; 1873-6181
• DOI: 10.1016/S0140-9883(02)00022-1

We compare and contrast two popular dynamic flexible functional forms for cost functions, the translog and the logit [J. Bus. Econ. Stat. 8 (1990) 347–353], using data on US industrial energy demand from 1960 to 1992 which has been analysed by previous studies (Energy Econ. 11 (1989) 89–94; Appl. Econ. 21 (1989) 931–945; J. Bus. Econ. Stat. 13 (1995) 459–465]. We show the crucial role played by different dynamic formulations of the translog in this analysis of factor demands with respect to rates of dynamic adjustment and substitution possibilities. We conclude that the poor performance of the dynamic translog relative to the dynamic logit cannot be explained solely by dynamic model mis-specification or the inclusion of price-unresponsive non-energy fuel use data. Our most robust empirical result is that coal and oil are substitutes.