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    Front Cover
    Electricity Marginal Cost Pricing: Applications in Eliciting Demand Responses
    Copyright
    Table of Contents
    Preface
    Acknowledgements
    1 Introduction
    2 The Theory of Natural Monopoly and Literature Review
    3 U.S. Electric Markets, Structure, and Regulations
    4 The Economics (and Econometrics) of Cost Modeling
    5 Cost Models
    Introduction
    Determination of an Appropriate Objective Function: A Brief Overview of the Literature
    Rural Electric Cooperatives
    Differences between Coops and IOUs
    Literature Review: Cost Studies on Rural Electric Cooperatives
    Data
    Review of the Literature: Cost Function Estimation in the Electric Utility Industry
    Nerlove's Cobb-Douglas Cost Model
    Further Considerations
    End of Section Exercises: Basic Cost Model versus Nerlove Cost Model
    Flexible Functional Forms
    Translogarithmic Cost Function
    Cost-Share Equations
    A Priori Expectations
    Discussion of Estimation Results: Single-Output Translog Cost Equation
    Substitution Elasticities among Inputs: Hicks-Allen Partial Elasticities of Substitution
    Price Elasticities
    Homotheticity
    End of Section Exercises: Translogarithmic Cost Function
    Multiproduct Cost Functions
    Literature Review
    Multiproduct Cost Models
    Multiproduct Cost Concepts (Revisited)
    Product-Specific Economies of Scale
    Quadratic Cost Functions
    A Properly Specified Quadratic Cost Function
    Reasons That the Quadratic Form Is the "Best" Suited for Modeling Industry Structure
    End of Section Exercises
    Cubic Cost Models
    Multiple-Output Models
    More Complex Multiple-Output Models
    Other Issues
    Measures of Efficiency for Multiple-Output Models
    Ray Cost Output Elasticity
    Degree-of-Scale Economies
    Product-Specific Economies of Scale
    Economies of Scope
    Cost Complementarity
    Conclusion
    End of Section Exercises: Multiple-Output Cost Models
    Appendix: Generalized Method of Moments (GMM)
    Appendix: Proofs
    6 Case Study: A Multiproduct Cubic Cost Model to Estimate the Marginal Cost of Distributing Electricity in the United States ...
    7 Case Study: Cost Models to Illustrate KLEM Data
    8 Efficient Pricing of Electricity
    9 Price and Substitution Elasticities of Demand: How Are They Used and What Do They Measure?: A Review of Demand ...
    10 Time-of-Use Case Study
    References
    Index
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    5 Cost Models > End of Section Exercises - Pg. 167

    End of Section Exercises 167 Discussion of Table 5.9 Results The estimation results displayed in Table 5.9 are much improved over the pre- vious two models. Signs of the estimates accord with a priori expectations in that cost increases at a decreasing rate. Furthermore, the input price coefficients are of an appropriate magnitude given the type of firms that are in the data set. This is confirmed by the adjusted R 2 , which indicates that 96% of the variation in cost is explained by the variables in the equation. END OF SECTION EXERCISES The data set Coops97 contains data on 711 distribution coops that were RUS borrowers in 1997. 1. Obtain summary statistics for the variables in the data set. 2. Estimate the equations used in Examples 5.4­5.6. Confirm results displayed in Tables 5.7­5.9. a. Do you find that any of the models fail to converge? b. Concerning Mayo's model: Estimate the unrestricted model (the model prior to imposing the three conditions that are specified above). What