On the Use of Double-Log Forms in Energy Demand Analysis

Abstract

The double-logarithmic demand function has been used widely in static energy demand studies. Recent examples include studies of electricity demand by Betancourt (1981) and Dias-Bandaranaike and Munasinghe (1983), of petroleum consumption by Brown (1983), and natural gas demand by Gowdy (1983). In this paper we examine some theoretical issues on the use of these functional forms in energy demand analysis and note a few related problems. Our analysis draws from the study by Dias-Bandaranaike and Munasinghe (1983) (hereafter DBM) recently published in The Energy Journal, Volume 4, Number 2. We concentrate on this paper for several reasons. First, it examines some of the theoretical underpinnings of double-log demand functions. Second, the authors claim that one of the contributions of their study is "[an] approach ... to derive demand functions [that] could be used to derive similar functions for other types of goods and services, besides electricity". Third, their study inadvertently reveals a number of problems that arise when the overriding concern is obtaining demand equations of the double-log form.