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Welfare Effects of Home Automation Technology with Dynamic Pricing

Author

Listed:
  • Bollinger, Bryan

    (Duke University)

  • Hartmann, Wesley R.

    (Stanford University)

Abstract

A fixed cost investment in home automation technology can eliminate consumers' marginal costs of responding to changing demand conditions. We estimate the welfare effects of a home automation technology using a field experiment run by a large electric utility that randomly assigned both a technology and price treatment. Average treatment effects reveal that the home automation technology reduces demand more than twice as much as an alternative technology that only informs consumers of price changes. Furthermore, the average demand reductions during critical price events provide sufficient supply-side welfare gains to fully offset the installation costs of the device. Finally, we estimate household-specific treatment effects by matching households on their pre-treatment policy functions. This demonstrates the additional surplus gained by the utility if it targeted these treatments to households with the largest estimated demand responses.

Suggested Citation

  • Bollinger, Bryan & Hartmann, Wesley R., 2015. "Welfare Effects of Home Automation Technology with Dynamic Pricing," Research Papers 3274, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:3274
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    File URL: http://www.gsb.stanford.edu/faculty-research/working-papers/welfare-effects-home-automation-technology-dynamic-pricing
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    Cited by:

    1. O'Neill, E. & Weeks, M., 2018. "Causal Tree Estimation of Heterogeneous Household Response to Time-Of-Use Electricity Pricing Schemes," Cambridge Working Papers in Economics 1865, Faculty of Economics, University of Cambridge.
    2. Gambardella, Christian & Pahle, Michael, 2018. "Time-varying electricity pricing and consumer heterogeneity: Welfare and distributional effects with variable renewable supply," Energy Economics, Elsevier, vol. 76(C), pages 257-273.
    3. Gambardella, Christian & Pahle, Michael & Schill, Wolf-Peter, 2020. "Do Benefits from Dynamic Tariffing Rise? Welfare Effects of Real-Time Retail Pricing Under Carbon Taxation and Variable Renewable Electricity Supply," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 75(1), pages 183-213.
    4. Garnache, Cloé & Hernaes, Øystein & Imenes, Anders Gravir, 2022. "Which Households Respond to Electricity Peak Pricing amid High Levels of Electrification?," IZA Discussion Papers 15194, Institute of Labor Economics (IZA).
    5. Eoghan O'Neill & Melvyn Weeks, 2018. "Causal Tree Estimation of Heterogeneous Household Response to Time-Of-Use Electricity Pricing Schemes," Papers 1810.09179, arXiv.org, revised Oct 2019.

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