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Contents lists available at ScienceDirect

Applied Energy

journal homepage: www.elsevier.com/locate/apenergy

**Estimating the residential demand function for natural gas
**

in Seoul with correction for sample selection bias

Seung-Hoon Yoo a,*, Hea-Jin Lim b,1, Seung-Jun Kwak c,2

a

School of Business and Economics, Hoseo University, 268 Anseo-Dong, Cheonan, Chungnam 330-713, Republic of Korea

Economic Research Institute, Korea Credit Guarantee Fund, 254-5 Kongdok-Dong, Mapo-Gu, Seoul 121-744, Republic of Korea

c

Department of Economics, Korea University, 5-1 Anam-Dong, Sungbuk-Ku, Seoul 136-701, Republic of Korea

b

a r t i c l e

i n f o

Article history:

Received 5 September 2007

Received in revised form 4 August 2008

Accepted 15 August 2008

Available online 18 November 2008

Keywords:

Natural gas demand

Non-response

Sample selection model

a b s t r a c t

Over the last twenty years, the consumption of natural gas in Korea has increased dramatically. This

increase has mainly resulted from the rise of consumption in the residential sector. The main objective

of the study is to estimate households’ demand function for natural gas by applying a sample selection

model using data from a survey of households in Seoul. The results show that there exists a selection bias

in the sample and that failure to correct for sample selection bias distorts the mean estimate, of the

demand for natural gas, downward by 48.1%. In addition, according to the estimation results, the size

of the house, the dummy variable for dwelling in an apartment, the dummy variable for having a bed

in an inner room, and the household’s income all have positive relationships with the demand for natural

gas. On the other hand, the size of the family and the price of gas negatively contribute to the demand for

natural gas.

Ó 2008 Elsevier Ltd. All rights reserved.

1. Introduction

Over the last two decades, the consumption of natural gas in

Korea has increased at a high annual growth rate of 18.7%. This is

due to the expansion of the infrastructure for gas distribution

and an increase in individual income. Crucial factors that underlie

the recent rise in the consumption of natural gas have been an upsurge in the urban consumption of gas3 and an increase of 55% in

the proportion of the urban consumption of gas that occurs in the

residential sector [1].

Owing to additional factors, in the capital city of Seoul, which

accounts for 23.3% of the residential consumption of energy in Korea, a signiﬁcant number of households have switched from oil and

coal to gas and electricity. Especially in urban areas, where, in

1987, natural gas began to be supplied and the rate of consumption

increased dramatically thereafter, the rate of consumption has increased at an average rate of 6.9% p.a. As of 2001, natural gas was

*** Corresponding author. Tel.: +82 41 560 8344; fax: +82 41 563 0135.
**

E-mail addresses: shyoo@hoseo.edu (S.-H. Yoo), iheajin@kodit.co.kr (H.-J. Lim),

sjkwak@korea.ac.kr (S.-J. Kwak).

1

Tel.: +82 2 2077 6727; fax: +82 2 2077 6722.

2

Tel.: +82 2 3290 2217; fax: +82 2 3290 2535.

3

The end-users of natural gas consist of the urban sector and power generation

sectors. These sectors account for 63% and 37% of national consumption of gas,

respectively.

0306-2619/$ - see front matter Ó 2008 Elsevier Ltd. All rights reserved.

doi:10.1016/j.apenergy.2008.08.023

**the main source of energy for households in Seoul, accounting for
**

55.4% of the residential consumption of energy [2].

However, Korea has scarce reserves of natural gas, which is

therefore imported entirely from natural gas-producing countries.

The supply chain for gas in urban areas in Korea is structured as

follows. Natural gas is imported in liquid form (LNG) from foreign

countries and is then supplied to domestic gas companies (wholesale companies and a monopolized public utilities company that is

owned by the Korean government). It is also supplied to regular,

urban, gas companies (for-proﬁt retail companies and private

ﬁrms) that supply to households, businesses, and industries.

Thus, the consumer’s price for urban gas is comprised of the

cost of importation and the wholesale and retail ﬁrms’ expenses

for supplying gas. Among the various components of cost, the cost

of importation ﬂuctuates due to ﬂuctuations in the international

price of oil and the exchange rate. Being public fees, the expenses

of wholesale and retail ﬁrms are regulated by local governments

and legislative assemblies. In the case of Seoul, the local government suppressed price increases by lowering and freezing fees;

however, after 2006, due to inﬂation and other factors, the price

of the gas was increased for the ﬁrst time [2].

On the other hand, the international price of LNG has recently

been at a very high level due to the high price of oil. The high price

of oil aside, the actual prices of goods are higher than ever before

due to the impact of technological and seasonal factors upon the

short-term supply and demand for natural gas. In particular, the

price levels, which in the past several years showed a downward

obtained a semi-parametric estimate considering selectivity. increased uncertainty in the ability to increase supply. [15] applied a dynamic linear regression model using pooled data sets across 49 US states over the period of 1970–90. Yoo et al. These ﬁndings support the notion that natural gas is a normal good. as per a recently concluded long-term contract.5 Non-response biases can generally be compensated for by weighting and imputation procedures. Many studies have been conducted on the estimation of the residential demand for natural gas elsewhere in the world [5–15]. The latter.6. The correction procedures for those biases rely on the assumption of random non-response within the categories. The empirical studies can be classiﬁed into two categories. we could not ﬁnd case-studies of Asian and African regions.-H.03. because of the short history of the use of LNG. Most of them have been based upon the analysis of panel data but some studies [5. [5]. the survey of households manifested a high rate of non-response [17]4: of the 380 households sampled. 5 The term ‘non-response bias. The remainder of the paper is organized as follows. The empirical ﬁndings are reported in the penultimate section. failure to incorporate all the missing observations was an issue. [12]. especially those for North American provinces and states. Bohi [10].16] have used cross-sectional data. Beierlein et al. the paper compares the results with those from a model that assumes no sample selection bias. and the long-run values ranged from 0. This can be achieved by analyzing the pattern of residential NGD. Classic studies in this category include Balestra and Nerlove [7]. heteroscedasticity. This reverse trend is due to an increase in demand. Interestingly. during the estimation of the res- 4 Non-response can mean either refusing to ﬁll-out and return surveys (unit nonresponse) or skipping items on a survey (item non-response). however. The ﬁrst category of studies uses cross-sectional survey data to analyze residential NGD. therefore. In addition. often refers to between. The second interesting ﬁnding is that the estimated incomeelasticities were mostly positive. two questions need to be asked: Do response rates differ across identiﬁable groups of households? Are there systematic differences within a particular group between those who answered the questions on NGD and those who did not? Bias will occur to the extent that these between. described in Section 4. Literature review of analyses of the demand for natural gas The empirical estimation of the NGD function has received considerable attention in the literature. the goal of this paper is to estimate the Korean residential NGD function using crosssectional data. for which these studies employed pooled regression. to the best of the authors’ knowledge. numerous researchers have been inclined to estimate dynamic models for NGD using a time-series of cross-sections. and long-run values range from 0.and within-group differences exist and furthermore. This means that NGD is . who used observations on 36 US states from 1950 to 1962.2 down to as low (or as high. In a more recent study of this issue. was to estimate the shortrun and long-run elasticities of residential NGD. [5] and Lee and Singh [6]. Some concluding remarks are made in Section 5. In a classic study. the estimation of the demand function for natural gas will provide useful information for pricing-related policies relating to importation and the costs of supply. The second purpose is to explore. Section 3 explains the data that are employed and presents an overview of the proposed methodology. In the present analysis. Maddala et al. in absolute value) as 4. The main goal of most of these studies. To determine whether non-response in the present study results in bias. while residential NGDs are price-inelastic in the short-run. As with many other cross-sectional data sets and associated surveys. Section 2 reviews the literature on analyses of residential NGD. However. Bloch [11]. Tinic et al. to test for sample selection bias.8%) failed to answer the question in the survey on natural gas consumption.and income-elasticities of NGD. are of great interest.77. The second category of studies pools the data and uses panel data estimators. neither panel data sets nor investigations of the demand for natural gas are available. Some interesting ﬁndings emerge from the table. It also employs two procedures. non-response is nonrandom: the individuals who do not respond to either the survey or the question hold different expected values for NGD than comparable individuals who do respond. According to the results of Verhulst [16].6. the estimates of the price. In this context.9 to 0. and Herbert [14]. Verhulst [16] measured the elasticities of price and disposable income. Other studies in this category include Tinic et al. in particular. As noted earlier. and Berndt and Watkins [8].S. Bohi [10]. has two major purposes. The estimates of the short-run income-elasticities ranged from 0. / Applied Energy 86 (2009) 460–465 trend. Therefore. Section 4.’ as used in the literature on survey research. A given cross-sectional study may suffer from either a between-group sample non-response bias and/or a within-group sample selection bias. Further.01 to 0. a survey was conducted of households in Seoul. empirical applications of the model in the estimation of the residential NGD function are lacking. and the expectation that the price of oil will remain high.43 to 0. especially for the residential sector. to balance supply with demand. 2. In the case of sample selection bias. First. Beierlein et al. and the structural stability of the demand equations for natural gas and electricity. the sample selection model that produces consistent parameter estimates and unbiased mean estimates of NGD. are related to NGD [18]. the international LNG market is expected to be unfavorable to importing countries such as Korea that procure most of their natural gas in the form of LNG. Microeconomic approaches to the modeling of the residential demand for natural gas enable us to acquire a better understanding of the nature of consumer responses to a change in the price of natural gas. both short-run and longrun price-elasticities are negative. 216 households (56. Moreover. [13]. In Korea. Verhulst [16] analyzed data from the French gas industry under the assumption that a consumer’s demand for natural gas was a Cobb–Douglas function. 461 idential NGD function.and within-group biases [18]. Most studies focus on North American and European regions that have a long history of the consumption of natural gas. shortrun price elasticity estimates of residential NGD range from 0. [15]. they may be price elastic (with elasticity being much larger than unity in absolute value) in the long-run. Table 1 summarizes the ﬁndings. besides various other interdependent factors [4]. the demand for natural gas (NGD) needs to be accurately predicted. [12]. Therefore. The main purpose of this paper is to estimate the residential NGD function. and Maddala et al. Al-Sahlawi [9]. Other studies in this category include Al-Sahlawi [9]. a sample selection model proposed by Heckman [19] has been commonly employed to rectify the problems emanating from the bias. In the present study. presented in Table 1. Blatterberger et al. To deal with sample selection bias. which assume that those participants in a given subgroup of the population who do not respond have the same expected values for NGD as those in the same subgroup who do respond. are now showing an upward trend. based on the data employed in them.34. To gather data. who generalized the approach of the former to a non-linear system using annual data for British Columbia and Ontario during 1959–1974. This paper.

x6) are. The potential biases here (the so-called measurement error) result from ﬂaws in the instrument. for each household i = 1.8 However.03 0. response-options for questions. there were enough explanations for these ﬁndings (see Maddala et al. the wording of questions. whose population is a fourth of the national population.2 to 4. [12] Blattenberger et al.7 Personal interviews with well-trained interviewers can offer the most scope for detailed questions and answers and elicit reliable estimates of values.. the natural logarithm of the size of the house. A total of 380 households were surveyed.94 Long-run 0. 1971–76 1967–77 1961–70 1961–74 1970–82 1970–90 United States (California) (36 states) (New Jersey) (Northeastern states) (6 states) (49 states) income-inelastic. We estimated the equation containing prices of substitutes such as electricity. Model The residential NGD function is based on a bivariate speciﬁcation of the sample selection model: a binary outcome to participate in providing information on the residential NGD in the survey. the natural logarithm of the size of the family.-H. [15] Berndt and Watkins [8] Residential Residential and Commercial Cross section Panel data Na.12 0.057) by Maddala et al. who were heads of households and/or housewives between 20 and 65 years of age. x02i b2 . in the selected sample that reports information on the residential NGD (demand equation). the associated variables have been omitted from the estimated equation. 0. Na. The model can be expressed as: y1i ¼ y1i ðx1 . the natural logarithm of the household income.22 to 0. as all of the coefﬁcients were insigniﬁcant at the 10% level.018–0. age. respectively.60 2. x3. It may be noted. both in the short-run and in the long-run. Accordingly.35 0. Modeling the residential demand for natural gas 3. 3. the model features two stochastic processes that determine the probability that household i will report information on residential NGD: y1i . However. / Applied Energy 86 (2009) 460–465 Table 1 Empirical results for the estimation of the natural gas demand function. in the full sample (response equation) and the conditional level of the residential NGD. x2.8%) households failed to answer the question on residential NGD. x3 . the interviewer’s errors. 0.36 Na. estimated as being either negative (0. Inc.10 r1 and r2 are the standard deviations of the marginal distributions of y1i and y2i . assuming a bivariate normal distribution. Data A survey of households was conducted in the month of May 2005.43) or nearly zero (0. [15] Residential Residential Panel data Panel data Na. .09 to 0. To obtain a representative sample of this population. respectively. these ﬁndings indicate that NGD responds more sensitively to changes in price than income.33 0. r21 . all the households gave socioeconomic information in the interviews. x2 . x3 . [15]). the city of Seoul was divided into 25 residential districts.17 Na. r22 . .22 0.01–0. [13] Residential Residential and Commercial Residential Residential Residential Residential Na. [18] 8 Researchers have found that non-response is often associated with a lack of interest in the topic of the survey [20]. 158 (42. qÞ. x5. oil. 7 Survey research is commonly vulnerable to instrument effects and miscommunication between the interviewer and the respondent. BVNðx01i b1 .. and the number of inhabitants – which corresponds to stratiﬁed random sampling. One could develop the model in the context of the joint distribution of ðy1i .02–0.9 0. and the like.34 0.20 0. professional polling ﬁrm (Dongseo Research.02 0. x2 . The survey was restricted to Seoul.06 0.05 to 0.34 to 3.9 Table 2 shows the sample statistics and the deﬁnitions of these variables.44 0. x4. The survey was conducted through personal interviews. x5 Þ ð1Þ y2i ¼ y2i ðx1 .01 to 0. Yoo et al. [15]. our observation is: y1i ¼ 1 if y1i > 0 0 otherwise ð3Þ Thus. etc.11 0. however.6 In short.24 to 1. Countries Sources End-use Data type Study period France Verhulst [16] Manufactured Cross section 1945 Canada (Alberta) (Ontario and British Columbia) Tinic et al.23 to 0. and q is the correlation coefﬁcient of y1i and y2i . .6 0.18 0.2.26 0.05–0.g. Panel data Panel data Panel data Herbert [14] Maddala et al. the order of questions. If there is no constraint on r1 and r2. We do not observe y1i but only whether or not y1i is greater than zero. x4 . Price elasticity Short-run Income elasticity Long-run Short-run 2. Thus. both in the short-run and in the long-run. A random sample was drawn by a Seoul-based. The reason for a poor response rate is that it can be difﬁcult for a household to recall its consumption of natural gas because (i) such consumption accounts for a very small percentage of total household expenditure and (ii) the quantity of natural gas consumed is measured by ton or m3.44 to 2.05 0. the dummy variable for dwelling in an apartment. 10 The assumption of bivariate normality for the distribution of the error terms is commonly used in the estimation of the sample selection model (e. Among them. 1959–74 Lee and Singh [6] Balestra and Nerlove [7] Cross section Panel data 1987 1957–62 Al-Sahlawi [9].43 to 0.77 0. y2i .10–0.2%) provided all the necessary information in the interviews while 216 (57.. x5 . and a level of the residential NGD reported in the survey. without any loss of generality.59 to 0.48 0.05 0. see [21]). that the long-run income elasticity for NGD was.17 0. 6 Although it seemed counterintuitive that long-run income elasticity was smaller than the short-run value.176 0.49 0. Na.N.462 S.2. x6 Þ ð2Þ where the explanatory variables (x1. rather unusually. the dummy variable for having a bed in an inner room. x4 .17–0. Bohi [10] Bloch [11] Beierlein et al.79 to 3. we can set r1 = 1 and r2 = r for identiﬁcation. 9 An anonymous reviewer commented that the model speciﬁcation should include prices of substitutes for LNG.31 3. and zero otherwise.13 0.02 0.) according to the distribution of sex.1. and the natural logarithm of the average price.25 0.12 to 0. y2i Þ. y1i is one if the ith household reports information on NGD in the survey. The survey was administered to residents.

respectively.66 0. sample selection bias was tested by employing both the likelihood-ratio test and the t-test.58) at the 1% level. Speciﬁcation test There are several tests of sample selection bias [23]. because larger the family. the estimated coefﬁcient for the Log of family term is not statistically signiﬁcant. respectively. and Bed) were calculated as 0. given that v20:05 ð1Þ ¼ 3:84. the error terms of the two equations are assumed to be uncorrelated with each other. A comparison of estimates of mean demand One could estimate the mean residential NGD for the average household. Estimation results for univariate and bivariate models The estimation results for univariate and bivariate models are presented in Table 3. In the present study. 4. Income. conditional upon the averages of explanatory variables 11 An anonymous reviewer has noted that it is surprising that the estimated coefﬁcient for the Log of family term was found to be insigniﬁcant. The results for the response equation in the bivariate model show that only two coefﬁcients.67 27. it is beyond the scope of this paper to implement the test. Yoo et al. the dummy for dwelling in an apartment.4. non-response bias can be examined by comparing the characteristics of those who responded in the interview (the response sample) with the characteristics of those who did not respond (the non-response sample).60 25. However. The likelihood-ratio test statistic asymptotically follows a chisquare distribution with one degree of freedom under the null hypothesis (q = 0) that there is no sample selection bias in the data. univariate models are also estimated. the sample selection model can be employed to rectify the problems arising from the bias.11 On the other hand. During the iterations.96) at the 5% level.48 90.67.33 0. the null hypothesis of q = 0 can also be rejected. the estimated coefﬁcient for the price of natural gas is negative and statistically signiﬁcant at the 1% level.39 309. the reviewer raised the prospect that NGD might therefore be correlated with family size.37.-H. The sample t-value for the estimate of q in Table 3 (11.85 0. thus. the null hypothesis can be rejected.2. 2.94 3.26 0. Although NGD and size of family are expected to be highly correlated. Therefore. The test statistics for the characteristics shown in Table 2 (Family. Empirical results 4.49 3.16 0.06 0.0 was approximately equal to 1000 Korean won.49 104. and 0.78 – – Pyung is usually used as a unit for measuring the size of a building.86 0.51 1.22 218. respectively. the dummy for having a bed in an inner room. These test results show there are signiﬁcant differences in the characteristics between the response and non-response samples in the survey.1.39. and the household’s income are positively related to the residential NGD. In addition. 3. greater is the cooking and greater is the heating for a larger living area. 4. In the NGD equation.37 342. The size of the house. and Income) exceed the critical value (1.12 4. to test for sample selection bias in the data. . between error terms in the response equation and in the demand equation is restricted to zero when univariate models are used. The Z-test statistic follows a standard normal distribution under the null hypothesis that there is no difference in the two means from the response and non-response samples. 3. the response equation and the demand equation are separately estimated by the conventional probit model and the method of least squares. To test whether there is a signiﬁcant difference in the characteristics between the two samples. It appears clear from the test results that the univariate models are not appropriate for making further inferences about the residential NGD.09.16 7. The coefﬁcients of univariate models can be biased when the error terms between equations are correlated. initial values are obtained from estimations of the univariate models (1) and (2). q. 1 pyeong is approximately equal to 3. After convergence of these transformed parameters. To estimate the sample selection model. Test for non-response bias In the ﬁrst place. the of q and r pestimates ﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃ are obtained by estimating c = qr and d ¼ r 1 q2 .93 – – 597. At the time of the survey. In this case. 1 = no) Dummy for having a bed in an inner room (0 = no.03 7. The test statistic was calculated as 4.88. APT. Note that in the response equation. the Z-test was employed for each characteristic. The speciﬁcations impose the desirable property that the standard deviation r should be strictly positive and the correlation coefﬁcient q should range from 1 to 1 [22].44 0.68.49 110. are signiﬁcant at the 5% and 10% levels. Variables Family House size APT Bed Income Price a b Deﬁnitions The size of family (Unit: number of persons) The size of house (Unit: pyeong)a Dummy for dwelling in apartment (0 = yes.3. In the univariate models.38 322. 12 An anonymous referee suggested that it is necessary to test for existence of heteroscedasticity in the estimated equation.1 = yes) Monthly household’s income before tax (Unit: tens of thousand Korean won)b Average monthly expenditure for residential NGD divided by the household’s monthly average NGD (Unit: Korean won) All samples Response sample Non-response sample Mean Standard deviation Mean Standard deviation Mean Standard deviation 3.463 S. In other words. the ﬁnal output and derivatives are written in terms of q and r. q is initialized to zero. which is large enough to reject the null hypothesis at the 5% level. Both tests use the fact that the correlation coefﬁcient. one for the dummy variable corresponding to dwelling in an apartment and the other for the household’s income.05 0.87 0. House size.28) exceeds the critical value (2. the dependent variable is equal to one if a household reported information on NGD in the interview and zero otherwise.47 0. The test statistics for three of the ﬁve variables (House size. some measure for correcting the non-response bias is necessary. USD 1.48 1. thus. We concur with this view and think that this issue needs further investigation. In addition. APT. the dependent variable is the natural logarithm of the residential NGD (the monthly average demand of the household over the entire year).67 0. 4.63 26. it is found in the results for the demand equation that the residential NGD varies according to some household characteristics.83 8. it is too burdensome to test for the existence of possible heteroscedasticity of the error term in a bivariate setting.31 m2. In addition. / Applied Energy 86 (2009) 460–465 Table 2 Deﬁnitions and sample statistics of the variables.37 0.

52 374 r q Log-likelihood Sample size Response equationb 81. The last row of Table 4 also presents the 95% conﬁdence interval that obtained by the use of the Monte Carlo simulation technique of Krinsky and Robb [24].462 0.511 ** (3. 119. the estimate of mean NGD is distorted downward by 48.08 104. First. 57. respectively.74 m3).765)** (0. According to the estimation results.819)** 0. respectively. we can conclude that if the sample selection bias is ignored.361) (1. Based on the bivariate model.06 374 4.633)** (1. the dummy for having a bed in an inner room.416 0.903)** (2. Variablea Univariate model Bivariate model b Response equation Constant Log of Family Log of House size APT Bed Log of Income Log of Price 4.685) (4. 217. the residential NGD is price-inelastic.1%. alone.521 ** (3.667) (3.226 (2.065 0. respectively. This means that NGD is a normal good and that an increase in income does not induce a big increase in residential NGD.659 0.109 0.48 m3.539) (2. our analysis. Table 4 shows the results of these calculations.48 32.79 158 Notes: t-values are reported in parentheses below the estimates.932)** 0.420) (1. Estimation of elasticities of the residential NGD One of the main objectives of this study was to estimate the price. It implies that the price is inversely related to the residential NGD.74 14. Concluding remarks The estimation of the residential NGD function offers a useful framework for analyzing consumer behavior with regard to residential NGD.427 0. and they do not overlap with each other.335 (2. Distorted estimates could lead to mistakes in policy analysis and evaluation. a The variables are deﬁned in Table 2.5. inappropriate.518 0.748) (1. This paper has attempted to estimate the NGD function in the residential sector using data from a survey conducted of households in Seoul.502 0. Some important ﬁndings emerged from the analysis.727) (2. / Applied Energy 86 (2009) 460–465 Table 3 Estimation results for the models. This paper provides several key policy implications for the management of the residential supply of natural gas.584) (0. As the absolute value of the price elasticity is smaller than unity. To take into account the non-response data and rectify the undesirable impacts of non-response. and the household’s income are all positively related to the residential NGD.932)** 235. and shows the likely range of mean demand estimates.12. This method quantiﬁes and models the uncertainty. respectively.875) (2.649)** Notes: t-values are reported in the parentheses below the estimates.1%. * Indicates statistical signiﬁcance at the 1% and 5% levels.448) (3.910)** (0. This is interesting evidence on the impact of not correcting for the sample selection bias in the estimation of the residential NGD function.131)* 0. the size of the family and the price .867) (2. the size of the house. the dummy for dwelling in an apartment.224)* Demand equationc 3.176)* c Demand equation 1.243 (3.5% of the observations from both tails.256)** (1.786)** (0.866 (11.76) and (104. the income elasticity is positive.129 0. otherwise. the mean from the univariate model should be interpreted as an overestimate.335 0. In addition.257 0.118 0.175) (1.680 0. and thus. The technique employs 5000 replications and omits 2.70 239.819)** 0.496 0. As sample selection bias can distort the mean value and result in inconsistent estimates of parameters.8% of sampled households did not respond to questions on their consumption of natural gas. suggesting that residential NGD cannot be easily discouraged through price increases Bivariate model Univariate model Price elasticity Income elasticity 0.359 0. which is much larger than that from the univariate model (161.12–217.75 Notes: The 95% conﬁdence intervals were computed by the use of the Monte Carlo simulation technique suggested by Krinsky and Robb [24]. Second.-H.59 11. failure to correct for this bias distorted the mean NGD estimate downward by 48. and the residential NGD is income-inelastic.279)** 314.37 147.and income-elasticities of the NGD.248)** 0. b The dependent variable is equal to one if the household completed a face-to-face interview and zero. Indicates statistical signiﬁcance at the 10% and 5% levels. Table 5 shows the estimation results. given the uncertainties that are involved in this type of estimation. leading to inconsistent parameter estimates and a distorted mean estimate of the residential NGD.128 0.361 0. Indicates statistical signiﬁcance at the 10% and 5% levels.70). This indicates that there is a signiﬁcant difference between the two values.256 0.612 0. 4. a bivariate model was employed. sample selection bias was detected in the sample. is appropriate for correcting the non-response bias in a survey. including the calculation of elasticities.593 (8. as expected.46 7.620) (3. On the other hand.649)** (2. Therefore.226 (1.243 (2. ** Indicates statistical signiﬁcance at the 1% and 5% levels. c The dependent variable is the natural logarithm of the household’s monthly natural gas demand (Unit: m3).03–119. Above all. They are different from those in the sample selection model. * ** Table 4 Results of mean demand estimates. From this. the price elasticity is negative as expected. Table 5 shows the estimation results for elasticities in the univariate model. In the survey.496 (3. respectively.03. in the selected sample.464 S. Mean estimates (m3/month) Standard error t-value 95% Conﬁdence interval Table 5 Estimation results of elasticities Univariate model Bivariate model 161.082 0.095 0.623) (0. Yoo et al. 5. The 95% conﬁdence intervals of the former and the latter are (147. The resulting lack of response can cause sample selection bias. These ﬁndings can be utilized to predict the impact of a change in the price of natural gas and/or a change in household income upon the future demand for natural gas. based on a bivariate model.131)* (2. the average household’s monthly average residential NGD in the sample is 239.338 0.

1981. Analyzing demand behavior: a study of energy elasticities. Econ Lett 2000.15:90–100. [24] Krinsky I. J Urban Econ 1980. Changes in LNG trade background. J Business Econ Statist 1997.14:165–74. Management Science 1973.34(3):585–612. Natural gas availability and the residential demand for energy. [19] Heckman JJ. Can J Econ 1977. 1990. 465 [4] Do HJ. commercial. the price.66:151–7. [10] Bohi DR. Watkins GC. Rev Econ Statist 1986.47:153–61.20(4):604–16. ISBN 1599-9009.and income-inelastic. Mid-term and short-term analysis of energy balance 2007–2012. The analysis of household surveys: a microeconometric approach to development policy. unlike most other studies that use panel data. [13] Blattenberger GR. [12] Beierlein JG. Yang CY. [18] Mitchell RC. Robb A. The demand for natural gas: a survey of price and income elasticities. and power generating) are useful avenues in the policy context for future research.68:715–9. [5] Tinic SM. [20] Stephens SA.243 and 0. [9] Al-Sahlawi MA. 2007. industrial. USA: Resources for the Future. Baltimore: Johns Hopkins University Press for World Bank. respectively.10(1):97–111. Carson RT. Hall JW. Pooling cross section and time series data in the estimation of a dynamic model: the demand for natural gas.335. Trost RP. 1997. Regional energy plan of Seoul city. Econometrica 1979. [7] Balestra P. Li H.-H. Using surveys to value public goods: the contingent valuation method. and an analysis of demand classiﬁed by end-use (residential. as a result of the relatively short history of natural gas consumption. [14] Herbert JH. / Applied Energy 86 (2009) 460–465 of gas negatively contribute to NGD. an increase in household income does not result in a signiﬁcant increase in the residential NGD. Residential demand for natural gas. KEEI Issue Paper. Yang HJ. Seoul: Korea Energy Economics Institute (KEEI). Econometrica 1950.10:77–87. various alternative analyses using panel data sets and aggregated time-series as discussed in the literature review.20:147–63. These ﬁndings can be utilized to predict the impact of a change in the price of natural gas and/or a change in household incomes on the future demand for natural gas. [23] Vella F. Paper presented at the annual conference of the American Association for Public Opinion Research: Buck Hill Falls. [6] Lee RS. The theory of demand applied to the French gas industry. 2003. residential NGD cannot be easily discouraged by simply increasing the price. Environ Resource Econ 2001.18(1):45–55. Nerlove M. Energy J 1989. In addition. [15] Maddala GS.63:403–8. Janssen CTL. [22] Yoo SH. McConnon JC. based on the bivariate model. . J Human Resources 1998. Taylor LD. Measuring local policy options: question order and question wording effects. Rev Econ Statist 1981. this article is signiﬁcant in that it uses microeconomic data. the consumption estimates that are often based on engineering calculations fail to take adequate account of consumer behavior in the use of household gas. This paper represents the ﬁrst study to be conducted on the estimation of the NGD function in Korea. Dunn JW. [17] Deaton A.15:527–42. In the absence of empirically-based estimates like those reported here. Rennhack RD. such useful information is expected to help policy-makers plan the imports and supplies of natural gas. Sample selection bias as a speciﬁcation error. [11] Bloch FE.S. Furthermore. [8] Berndt ER. 2007. Singh N. and ongoing reform in the gas industry is encouraging energy utilities to become energy service providers instead of merely being gas distributors. J Econ Soc Measure 1994.4:23–45.and income-elasticities were estimated to be 0. J Econ Soc Measure 1986. Estimation of rural demand for natural gas. Estimating models with sample selection bias: a survey. The demand for electricity and natural gas in the northeastern United States.1(18). Estimation of short-run and long-run elasticities of energy demand from panel data using shrinkage estimators. Energy J 1983. Hence. Demand for natural gas: residential and commercial markets in Ontario and British Columbia. Data analysis and the estimation of aggregate natural gas demand per customer.7(3): 371–83. Therefore. 2nd ed. Yoo et al. [21] Yoo SH. On approximating the statistical properties of elasticities. Baltimore: Johns Hopkins University Press for Resources for the Future. 1983. It must be emphasized that the estimate obtained through this study refers to the time at which the study was undertaken. This is so especially in the present time when conditions for the importation of LNG are becoming volatile and unfavorable. Patterns in residential gas and electricity consumption: an econometric analysis.14:165–74. In addition. Joutz F. implying that the household demand for natural gas is price. Dealing with bottled water expenditures data with zero observations: a semiparametric speciﬁcation. References [1] Park GS. [2] Seoul Metropolitan Government. Harden BM. Econometrica 1996. Application of sample selection model to double-bounded dichotomous choice contingent valuation studies. Further. Seoul. [16] Verhulst MJ.

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