A dynamic analysis of interfuel substitution for Swedish heating plants

This paper estimates a dynamic model of interfuel substitution for Swedish heating plants. We use the cost share linear logit model developed by Considine and Mount (Considine, T.J., Mount, T.D., 1984. The use of linear logit models for dynamic input demand systems. Review of Economics and Statistics 66, 434-443). All estimated own-price elasticities are negative and all cross-price elasticities are positive. The estimated dynamic adjustment rate parameter is small, however, increasing with the size of the plant and time, indicating fast adjustments in the fuel mix when changing relative fuel prices. The estimated model is used to illustrate the effects of two different policy changes. (C) 2004 Elsevier B.V. All rights reserved.