7.12 An Econometric Analysis of Residential
Electric Appliance Holdings and Consumption
Recent micro-simulation studies of the demand for
electricity by residences have attempted to model
jointly the demand for appliance and the demand
for electricity by appliance. Within this context
it becomesimportant to test the statistical
exogeneity of appliance dummy variables typically
included in demand for electricity equations. If,
as the theory would suggest, the demand for
durables and their use are related decisions by
the consumer, specifications which ignore this
fact will lead to biased and inconsistent
estimates of price and income elasticities. The
present paper attempts to test this bias using a
subsample of the 1975 survey of 3249 households
carried out by the Washington Center for
Metropolitan Studies (WCMS) for the Federal Energy
Administration. We discuss and derive a unified
model of the demand for consumer durables and the
derived demand for electricity. To determine the
magnitude of the bias resulting from estimating a
unit electricity consumption (UEC) equation by
ordinary least squares when unobserved factors
influence both choice of appliances and intensity
of use, we introduce and estimate a joint
water-heat space-heat choice model, and conclude
with the consistent estimation and specification
of demand for electricity equations.