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Price elasticities of residential electricity demand: Estimates from household panel data in Bangladesh

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  • Balarama, Hemawathy
  • Islam, Asad
  • Kim, Jun Sung
  • Wang, Liang Choon

Abstract

We collect a household level panel dataset to estimate the price elasticities of electricity demand for different types of urban households in Bangladesh. We use an instrumental variable estimation strategy which exploits exogenous variation in average electricity prices induced by a value-added-tax shock. The results indicate significant heterogeneity in price elasticities by electricity consumption levels. We conduct a number of simulations under alternative policy scenarios to illustrate how incorporating the heterogeneous nature of price elasticities into pricing policy can help decrease electricity demand-supply mismatch and inequality in electricity consumption. The results have important policy implications for developing countries aiming to address major energy issues by implementing tariff reforms.

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  • Balarama, Hemawathy & Islam, Asad & Kim, Jun Sung & Wang, Liang Choon, 2020. "Price elasticities of residential electricity demand: Estimates from household panel data in Bangladesh," Energy Economics, Elsevier, vol. 92(C).
    • Handle: RePEc:eee:eneeco:v:92:y:2020:i:c:s0140988320302772
    DOI: 10.1016/j.eneco.2020.104937
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    2. Syed Hasan & Odmaa Narantungalag, & Martin Berka, 2022. "The intended and unintended consequences of large electricity subsidies: evidence from Mongolia," Discussion Papers 2202, School of Economics and Finance, Massey University, New Zealand.
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    More about this item

    Keywords

    Electricity demand; Price elasticity; Non-liner pricing system; Demand-supply mismatch; Inequality of electricity access; Tariff reform;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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