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A New Look at Residential Electricity Demand Using Household Expenditure Data

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Author Info

  • Harrison Fell

    ()
    (Division of Economics and Business, Colorado School of Mines)

  • Shanjun Li

    ()
    (Dyson School of Applied Economics and Management, Cornell University)

  • Anthony Paul

    ()
    (RFF (Resources for the Future))

Abstract

The recent push for a federal energy policy that could substantially change electricity prices in the U.S. highlights the need to obtain accurate residential electricity demand estimates. Many electricity demand estimates have been obtained based on the assumption that consumers optimize with respect to known marginal prices, but increasing empirical evidence suggests that consumers are more likely to respond to average prices. Under this assumption, this paper develops a new strategy based on GMM to estimate household electricity demand. Our approach allows a national-level demand estimation from publicly available expenditure data and utility-level consumption data, complementing studies that use individual billing data which are richer yet often proprietary. We estimate the price elasticity near -1, which is at the upper end (in magnitude) among the estimates from previous studies. We apply our elasticity estimates in a U.S. climate policy simulation to determine how these elasticity estimates alter consumption and price outcomes compared to the more conservative elasticity estimates commonly used in policy analysis.

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File URL: http://econbus.mines.edu/working-papers/wp201204.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by Colorado School of Mines, Division of Economics and Business in its series Working Papers with number 2012-04.

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Length: 42 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:mns:wpaper:wp201204

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Keywords: Electricity Demand; CEX; GMM; Cap-and-trade;

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References

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  1. Herriges, Joseph A & King, Kathleen Kuester, 1994. "Residential Demand for Electricity under Inverted Block Rates: Evidence from a Controlled Experiment," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 419-30, October.
  2. Lester D. Taylor, 1975. "The Demand for Electricity: A Survey," Bell Journal of Economics, The RAND Corporation, vol. 6(1), pages 74-110, Spring.
  3. Anna Alberini & Gans Will & Daniel Lopez-Velez, 2010. "Residential Consumption of Gas and Electricity in the U.S.: The Role of Prices and Income," CEPE Working paper series 10-77, CEPE Center for Energy Policy and Economics, ETH Zurich.
  4. Espey, James A. & Espey, Molly, 2004. "Turning on the Lights: A Meta-Analysis of Residential Electricity Demand Elasticities," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 36(01), April.
  5. Shammin, Md Rumi & Bullard, Clark W., 2009. "Impact of cap-and-trade policies for reducing greenhouse gas emissions on U.S. households," Ecological Economics, Elsevier, vol. 68(8-9), pages 2432-2438, June.
  6. repec:nbr:nberwo:16114 is not listed on IDEAS
  7. Paul, Anthony & Myers, Erica & Palmer, Karen, 2009. "A Partial Adjustment Model of U.S. Electricity Demand by Region, Season, and Sector," Discussion Papers dp-08-50, Resources For the Future.
  8. Dubin, Jeffrey A & McFadden, Daniel L, 1984. "An Econometric Analysis of Residential Electric Appliance Holdings and Consumption," Econometrica, Econometric Society, vol. 52(2), pages 345-62, March.
  9. Herriges, Joseph A. & King, K.A., 1994. "Residential Demand for Electricity Under Block Rate Structures: Evidence from a Controlled Experiment," Staff General Research Papers 1498, Iowa State University, Department of Economics.
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Cited by:
  1. Anna Alberini & Gans Will & Daniel Lopez-Velez, 2010. "Residential Consumption of Gas and Electricity in the U.S.: The Role of Prices and Income," CEPE Working paper series 10-77, CEPE Center for Energy Policy and Economics, ETH Zurich.
  2. Nina Boogen & Souvik Datta & Massimo Filippini, 2014. "Going beyond tradition: Estimating residential electricity demand using an appliance index and energy services," CER-ETH Economics working paper series 14/200, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  3. Harrison Fell & Joshua Linn, 2012. "Renewable Electricity Policies, Heterogeneity, and Cost Effectiveness," Working Papers 2012-07, Colorado School of Mines, Division of Economics and Business.
  4. Alberini, Anna & Filippini, Massimo, 2011. "Response of residential electricity demand to price: The effect of measurement error," Energy Economics, Elsevier, vol. 33(5), pages 889-895, September.

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