Estimating the residential demand function for natural gas in Seoul with correction for sample selection bias

Over the last twenty years, the consumption of natural gas in Korea has increased dramatically. This increase has mainly resulted from the rise of consumption in the residential sector. The main objective of the study is to estimate households’ demand function for natural gas by applying a sample selection model using data from a survey of households in Seoul. The results show that there exists a selection bias in the sample and that failure to correct for sample selection bias distorts the mean estimate, of the demand for natural gas, downward by 48.1%. In addition, according to the estimation results, the size of the house, the dummy variable for dwelling in an apartment, the dummy variable for having a bed in an inner room, and the household’s income all have positive relationships with the demand for natural gas. On the other hand, the size of the family and the price of gas negatively contribute to the demand for natural gas.