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Estimating Energy and Water Demand Elasticities for Sustainable Consumption Policies: China Sample Evidence

Jun DU, Hiroaki SHIRAKAWA and Hidefumi IMURA （Nagoya University）

Abstract:
China’s water and energy price reform began in the late 1978 after running large-scale interventions in pricing system for long time then has a gradually deep influence on consumer’s behaviors. The main objective of this paper is to empirically examine Chinese consumer reactions as a response to the introductions of pricing reform for water and energy resource. This study uses the full nonlinear Almost Ideal Demand System to estimate the income and price elasticities of household demand using expenditure survey data of urban household from1995 to 2006 across China. Expenditure elasticities for water, electricity and fuel are 0.44, 0.60 and 0.44 respectively and all of own price elasticities are negative and low which implies that an increase of relative prices for water, electricity and fuels leads to different effectiveness in their consumption, showing advantage and limitation of the price reform which intends to regulation of household consumption behavior in China. These can be used to evaluate recent and current correlative pricing and environmental policies directed at stimulating sustainable household consumption in China.

Key Word:
AIDS, household demand, income, price, elasticity, sustainable consumption

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