Olivia, S. & Gibson, J. (2008). Household energy demand and the equity and efficiency aspects of subsidy reform in Indonesia. The Energy Journal, 29(1), 21-39.
Permanent Research Commons link: http://hdl.handle.net/10289/2104
The proper design of price interventions in energy markets requires consideration of equity and efficiency effects. In this paper, budget survey data from 29,000 Indonesian households are used to estimate a demand system for five energy sources, which is identified by the spatial variation in unit values(expenditures divided by quantities). We correct for the various quality and measurement error biases that result when unit values are used as proxies for market prices. The price elasticities are combined with tax and subsidy rates to calculate the marginal social cost of price changes for each item. The results suggest than even with high levels of inequality aversion there is a case for reducing the large subsides on kerosene in Indonesia, supporting the reforms that have been announced recently.
This article copyrighted and reprinted by permission from the International Association of Energy Economics. The article first appeared in the Energy Journal (Volume 29, No. 1, 2008). Visit the Energy Journal online at http://www.iaee.org/en/publications/journal.aspx.
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