cost and demand functions of electricity in the Gambia from 1982 to 2007

مقال فى مجلة

2011

This paper argues that an electricity demand should be estimated simultaneously with the supply. It

then estimates the demand for and the supply of the electricity in the Gambia using reduced form

regressions and vector error correction methods. The paper finds that systems of simultaneous

equations cannot be simplified to reduced form regressions to satisfy the statistical requirements, but

rather the theoretical modeling requirements determine the choice of the statistical model. The vector

error correction method incorporating the theoretical restrictions of the model is found to better fit the

data than the reduced form regressions. From the estimation results of this method, the electricity

demand is found to be price elastic and income elastic. The electricity demand is found to shrink if the

company charges an average price higher than 1.3 times of the per capita GDP growth rate; and since

the demand is price elastic, increasing the electricity price will result in falling revenues for the

company. The electricity industry, which here refers to the national electricity company, exhibits

diseconomies of scale. The industry is found inefficient, and failing to innovate and accumulate

knowledge to enable it to expand output with falling average unit cost. With the current operation, the

expansion of output could be undertaken only with increasing average unit cost and hence increasing

electricity price.

• رقم المجلد: 5
• رقم الانشاء: 4
• مجلة/صحيفة: African Journal of Business Management
• الصفحات: 1184-1193