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Energy substitution: When model selection depends on the focus

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  • Behl, Peter
  • Dette, Holger
  • Frondel, Manuel
  • Tauchmann, Harald

Abstract

In contrast to conventional model selection criteria, the Focused Information Criterion (FIC) allows for the purpose-specific choice of model specifications. This accommodates the idea that one kind of model might be highly appropriate for inferences on a particular focus parameter, but not for another. Ever since its development, the FIC has been increasingly applied in the realm of statistics, but this concept appears to be virtually unknown in the literature on energy and production economics. Using the classical example of the Translog cost function and production data for 35 U.S. industry sectors (1960–2005), this paper provides for an empirical illustration of the FIC and demonstrates its usefulness in selecting production models, thereby focusing on the ease of substitution between energy and capital versus energy and labor.

Suggested Citation

  • Behl, Peter & Dette, Holger & Frondel, Manuel & Tauchmann, Harald, 2013. "Energy substitution: When model selection depends on the focus," Energy Economics, Elsevier, vol. 39(C), pages 233-238.
    • Handle: RePEc:eee:eneeco:v:39:y:2013:i:c:p:233-238
    DOI: 10.1016/j.eneco.2013.04.013
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    References listed on IDEAS

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    1. Behl, Peter & Dette, Holger & Frondel, Manuel & Tauchmann, Harald, 2012. "Choice is suffering: A Focused Information Criterion for model selection," Economic Modelling, Elsevier, vol. 29(3), pages 817-822.
    2. Fuss, Melvyn & McFadden, Daniel & Mundlak, Yair, 1978. "A Survey of Functional Forms in the Economic Analysis of Production," Histoy of Economic Thought Chapters, in: Fuss, Melvyn & McFadden, Daniel (ed.),Production Economics: A Dual Approach to Theory and Applications, volume 1, chapter 4, McMaster University Archive for the History of Economic Thought.
    3. Dale W. Jorgenson & Kevin J. Stiroh, 2000. "Raising the Speed Limit: U.S. Economic Growth in the Information Age," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(1), pages 125-236.
    4. Kintis, Andreas A. & Panas, Epaminondas E., 1989. "The capital--energy controversy: further results," Energy Economics, Elsevier, vol. 11(3), pages 201-212, July.
    5. Frondel, Manuel & Vance, Colin, 2012. "Interpreting the Outcomes of two-part models," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 19(10), pages 987-992.
    6. Manuel Frondel & Christoph M. Schmidt, 2006. "The Empirical Assessment of Technology Differences: Comparing the Comparable," The Review of Economics and Statistics, MIT Press, vol. 88(1), pages 186-192, February.
    7. Frondel, Manuel & Schmidt, Christoph M., 2003. "Rejecting capital-skill complementarity at all costs," Economics Letters, Elsevier, vol. 80(1), pages 15-21, July.
    8. Claeskens, Gerda & Hjort, Nils Lid, 2008. "Minimizing Average Risk In Regression Models," Econometric Theory, Cambridge University Press, vol. 24(2), pages 493-527, April.
    9. Holger Dette & Mark Podolskij & Mathias Vetter, 2006. "Estimation of Integrated Volatility in Continuous‐Time Financial Models with Applications to Goodness‐of‐Fit Testing," Scandinavian Journal of Statistics, Danish Society for Theoretical Statistics;Finnish Statistical Society;Norwegian Statistical Association;Swedish Statistical Association, vol. 33(2), pages 259-278, June.
    10. Manuel Frondel & Christoph M. Schmidt, 2002. "The Capital-Energy Controversy: An Artifact of Cost Shares?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 53-79.
    11. Dette, Holger & Podolskij, Mark, 2008. "Testing the parametric form of the volatility in continuous time diffusion models--a stochastic process approach," Journal of Econometrics, Elsevier, vol. 143(1), pages 56-73, March.
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    Cited by:

    1. Behl, Peter & Dette, Holger & Frondel, Manuel & Vance, Colin, 2019. "A focused information criterion for quantile regression: Evidence for the rebound effect," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 223-227.

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    More about this item

    Keywords

    Information criteria; Translog cost function; Cross-price elasticities;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • D2 - Microeconomics - - Production and Organizations

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