Measuring the welfare effects of reducing a subsidy on a commodity using micro-models: An application to Kuwait's residential demand for electricityMahmoud A.M. BuShehri and Michael Wohlgenant () Energy Economics, 2012, vol. 34, issue 2, 419-425 Abstract: This paper provides a conceptual and empirical approach for evaluating the direct benefits and costs that are associated with reforming the price of a subsidized commodity using a micro-model. The welfare analysis is based on two alternative scenarios, a hypothetical percentage increase in the price of the commodity and a hypothetical percentage decrease in the amount of subsidy. The latter is considered to be a simultaneous problem in which the exact price of the commodity that reduces consumption, and subsequently the subsidy to the specific target level needs to be determined first. As a case study, the paper utilizes the most recent Household Expenditure Survey in the State of Kuwait to estimate residential electricity demand for different household groups (i.e., low-, middle-, and high-income), and employs a partial equilibrium model to measure the welfare implications that may result from a reduction in the electricity subsidy rates. The empirical findings show that a small increase in the price of electricity would reduce annual consumption by 4741millionkWh and annual subsidy by US$734 million. The results also show that the loss in consumers’ welfare is approximately US$145 million, while the financial and environmental benefits to the society ranges between US$658 million and US$889 million. The magnitude of these welfare gains suggests that electricity price reforms combined with a rebate scheme to compensate households for their welfare loss, offsetting any political resistance to reform, is a win-win situation. Keywords: Micro demand model; Subsidy; Reform policy; Welfare measurements (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:34:y:2012:i:2:p:419-425 DOI: 10.1016/j.eneco.2011.08.001 Access Statistics for this article Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant More articles in Energy Economics from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.