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http://dx.doi.org/10.15266/KEREA.2014.23.1.043

An analysis on the effects of higher power rates on supply price and power savings for Korean manufacturing sector  

Lee, Myunghun (Department of International Trade, Inha University)
Publication Information
Environmental and Resource Economics Review / v.23, no.1, 2014 , pp. 43-65 More about this Journal
Abstract
In this paper, we test for allocative efficiency of productive inputs including electricity and measure the divergence between the actual and optimal level of electricity for the chemical products, which is a relatively highly electricity-intensive sector in Korean manufacturing industries, by estimating a shadow cost function. Supposing cost minimization subject to market prices was achieved, we derive the price elasticities of demand for each input and simulate the impact of a 10% increase in power rate on its demand and supply price by estimating jointly a cost function with an inverse supply relation. The null hypothesis of allocative efficiency of inputs is rejected over the period 1982-2006. On average, electricity is used more than optimal level by 98% per year. The demand for electricity decreases by 11.4%, and supply price, on average, falls by 0.08%, other things being equal.
Keywords
Manufacturing industries; Allocative efficiency of inputs; Shadow cost function; Supply relation; Higher power rate; Supply price; Price elasticity of demand for inputs; Simulation;
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