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The effect of price on electricity contract choice

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  • Vesterberg, Mattias

Abstract

I explore how households switch between fixed-price and variable-price electricity contracts in response to variations in price and temperature, conditional on previous contract choice. Using panel data with roughly 54,000 Swedish households, a dynamic probit model is estimated. The results suggest that the choice of contract exhibits substantial state dependence, with an estimated marginal effect of previous contract choice of 0.96, and that the short-run effects of variation in prices and temperature on the choice of electricity contract are small. Further, the state dependence and price responsiveness are similar across housing types, income levels and other dimensions. A plausible explanation of these results is that transaction costs are perceived to be larger than the relatively small cost savings from switching between contracts.

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  • Vesterberg, Mattias, 2018. "The effect of price on electricity contract choice," Energy Economics, Elsevier, vol. 69(C), pages 59-70.
    • Handle: RePEc:eee:eneeco:v:69:y:2018:i:c:p:59-70
    DOI: 10.1016/j.eneco.2017.10.039
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    4. Lanot, Gauthier & Vesterberg, Mattias, 2021. "The price elasticity of electricity demand when marginal incentives are very large," Energy Economics, Elsevier, vol. 104(C).
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    6. Andreas Ziegler, 2018. "Heterogeneous preferences and the individual change to alternative electricity contracts," MAGKS Papers on Economics 201827, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    7. Ziegler, Andreas, 2020. "Heterogeneous preferences and the individual change to alternative electricity contracts," Energy Economics, Elsevier, vol. 91(C).

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    More about this item

    Keywords

    Electricity contract choice; Residential electricity demand; Demand flexibility; Transaction costs;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • D10 - Microeconomics - - Household Behavior - - - General
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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