A simulation-based estimation model of household electricity demand and appliance ownership

Understanding how electricity demand is likely to rise once households gain access to it is important to policy makers and planners alike. Current approaches to estimate the latent demand of unelectrified populations usually assume constant elasticity of demand. Here we use a simulation-based structural estimation approach, employing micro-data from household surveys for four developing nations, to estimate responsiveness of electricity demand and appliance ownership to income considering changes both on the intensive and extensive margin. We find significant heterogeneity in household response to income changes, which suggest that assuming a non-varying elasticity can result in biased estimates of demand. Our results confirm that neglecting heterogeneity in individual behavior and responses can result in biased demand estimates.