Modelling Household Energy Expenditures Using Micro-Data

This paper is concerned with the empirical modeling of domestic demand for energy in the United Kingdom at the level of the individual household. A two-stage budgeting model of household demand for energy conditional on durable ownership is developed. At the first stage, income is allocated between energy and nonenergy consumption, while at the second stage, energy expenditure is disaggregated. The second-stage allocation is assumed to be between gas, electricity, and a composite good "other fuels." Estimation takes place using a sample of some 50, 000 households drawn from the annual U.K. Family Expenditure Survey for the years 1972-83, a source that has not been fully exploited in the analysis of energy demand to date.