Pakistan Institute of Development Economics



Impact of Rising Energy Prices on Consumer’s Welfare: A Case Study of Pakistan

This work investigated the impact of higher energy prices onconsumer’s welfare for the Pakistan from 1987 to 2012. The centralobjective of the study is to quantify the consumer welfare throughCompensating Variation (CV) after estimating the demand elasticities byapplying the Linear Almost Ideal Demand System (LA/AIDS) for main energysources. Welfare change is also measured in four scenarios (two priceshocks) for Pakistan in order to analyse the impact of energy pricechange in different time period. Coal, gasoline and High Speed Diesel(HSD) oil are relatively less elastic, where High Octane BlendedComponent (HOBC), kerosene and Compressed Natural Gas (CNG) arerelatively more elastic, while electricity and natural gas is unitelastic. Additionally, the results of Compensating Variation suggestthat due to higher energy prices, more income compensation is requiredto pay for consumer in order to achieve the initial energy utility. Somixture of price controlling and income policies should be adopted foreach energy source. JEL Classification: D6, Q4 Keywords: Rising EnergyPrices, Consumer Welfare, LA/AIDS, CV, Time Series Data

Shamaila Aziz,

Muhammad Rizwan Yaseen,

Sofia Anwar