Axiom of the relative income hypothesis and household energy choice and consumption in developing areas: Empirical evidence using Verme model

Abstract

     According to the relative income hypothesis, consumption behavior of households does not depend solely on their absolute income but also relatively on other peoples' income and consumption behavior. Households try to maintain their consumption pattern in such a way to meet the average consumption standard of their community. This study was conducted with the major aim of testing the validity of this axiom in relation to the household energy choice and consumption in the context of developing countries. In total, 540 households were utilized as the samples of the study. The study used both statistical and econometric (Verme model) tools. Both the cooking and lighting aspects of household energy sources were examined separately. The study found that all the various tests methods confirmed the validity of the axiom of relative income hypothesis in relation to household energy choice and consumption. Therefore, if the policy makers of developing areas take this aspect into consideration, it will simplify the process of making and implementing policies for shifting households away from using traditional biomass energy sources to modern, clean sources of energy.