Path-dependency and input substitution: Implications for energy policy modeling

G.H. Kuper, D.P. van Soest

Research output: Contribution to journalArticleScientificpeer-review

30 Citations (Scopus)
24 Downloads (Pure)

Abstract

In most policy-oriented energy models, the effectiveness of energy policy instruments crucially depends both on the values of the substitution elasticities between the various inputs and on the rates of technological progress. In this paper, we argue that due to the fixed-cost nature of adjustments to relative price changes, these technological parameters are affected by past developments. Failing to account for the role of history will result in biased parameter estimates, and hence the implication for energy policy modelling is that the estimation period should be carefully selected. We provide an empirical illustration using data for the Netherlands.
Original languageEnglish
Pages (from-to)397-407
Number of pages10
JournalEnergy Economics
Volume25
Issue number4
DOIs
Publication statusPublished - 2003

Keywords

  • input substitution
  • path-dependency
  • energy policy

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