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Does Energy Consumption Respond to Price Shocks?: Evidence from a Regression-Discontinuity Design

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  • Bastos, Paulo
  • Castro, Lucio
  • Cristia, Julian P.
  • Scartascini, Carlos

Abstract

This paper exploits unique features of a recently introduced tariff schedule for natural gas in Buenos Aires to estimate the short-run impact of price shocks on residential energy utilization. The schedule induces a non-linear and non-monotonic relationship between households' accumulated consumption and unit prices, thus generating an exogenous source of variation in perceived prices, which is exploited in a regression-discontinuity design. The estimates reveal that a price increase in the utility bill received by consumers causes a substantial and prompt decline in gas consumption. Hence they suggest that policy interventions via the price mechanism, such as price caps and subsidies, are powerful instruments to influence residential energy utilization patterns, even within a short time span.

Suggested Citation

  • Bastos, Paulo & Castro, Lucio & Cristia, Julian P. & Scartascini, Carlos, 2011. "Does Energy Consumption Respond to Price Shocks?: Evidence from a Regression-Discontinuity Design," IDB Publications (Working Papers) 3088, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:3088
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    Cited by:

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    2. Harpenau, Franziska & Magalhaes, Katrin Marques & Steffen, Nico & Wiewiorra, Lukas, 2023. "Saving behaviors of private households under varying tariff structures, price levels and incentives - Experimental evidence," WIK Working Papers 7, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH, Bad Honnef.
    3. Alberini,Anna & Umapathi,Nithin, 2021. "What Are the Benefits of Government Assistance with Household Energy Bills ? Evidence from Ukraine," Policy Research Working Paper Series 9669, The World Bank.
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    5. Do,Quy-Toan & Jacoby,Hanan G., 2020. "Sophisticated Policy with Naive Agents : Habit Formation and Piped Water in Vietnam," Policy Research Working Paper Series 9207, The World Bank.

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    More about this item

    Keywords

    IDB-WP-234; Energy consumption; Elasticity of demand; Regulation of public utilities; Regression discontinuity design; Public policy;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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