Estimating Electric Power's Equivalent Scale for the Urban Iranian Household

Abstract

The household equivalent scale is an index to measure the impact of household demographic characteristics, such as the householder's age and gender, the number of household members, etc. It plays a significant role in measuring poverty and inequality. By taking into account demographic characteristics differences, this index facilitates the reasonable comparison of households' welfare and functions as a coefficient for the target household with a reference household. Using income and expenditures data of Iranian urban households in 2012-2018, this study measures the relative child cost of each urban household in Iran while estimating the Quadratic Almost Ideal Demand System (QAIDS) and price scaling utilizing Nonlinear Seemingly Unrelated Regression. This model provides significantly more accurate and efficient estimates than the linear model. Also, it calculates the elasticity of income and price of electric power goods. The results illustrate that the relative child cost in Iranian urban households is 33% of an adult cost, and electric power in Iranian urban households is a necessary yet low elasticity commodity. Therefore, pricing policies may not significantly influence the demand for this product.