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Knowledge is (Less) Power: Experimental Evidence from Residential Energy Use

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  • Katrina Jessoe
  • David Rapson

Abstract

This paper presents experimental evidence that information feedback dramatically increases the price elasticity of demand in a setting where signals about quantity consumed are traditionally coarse and infrequent. In a randomized controlled trial, residential electricity customers are exposed to price increases, with some households also receiving displays that transmit high-frequency information about usage and prices. This substantially lowers information acquisition costs and allows us to identify the marginal information effect. Households only experiencing price increases reduce demand by 0 to 7 percent whereas those also exposed to information feedback exhibit a usage reduction of 8 to 22 percent, depending on the amount of advance notice. The differential response across treatments is significant and robust to the awareness of price changes. Conservation extends beyond the treatment window, providing evidence of habit formation, spillovers, and greenhouse gas abatement. Results suggest that information about the quantity consumed facilitates learning, which likely drives the treatment differential.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18344.

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Date of creation: Aug 2012
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Publication status: published as Katrina Jessoe & David Rapson, 2014. "Knowledge Is (Less) Power: Experimental Evidence from Residential Energy Use," American Economic Review, American Economic Association, vol. 104(4), pages 1417-38, April.
Handle: RePEc:nbr:nberwo:18344

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  1. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and Taxation: Theory and Evidence," American Economic Review, American Economic Association, American Economic Association, vol. 99(4), pages 1145-77, September.
  2. Severin Borenstein, 2002. "The Trouble With Electricity Markets: Understanding California's Restructuring Disaster," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 16(1), pages 191-211, Winter.
  3. Severin Borenstein, 2005. "The Long-Run Efficiency of Real-Time Electricity Pricing," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 3), pages 93-116.
  4. Grant D. Jacobsen & Matthew J. Kotchen & Michael P. Vandenbergh, 2010. "The Behavioral Response to Voluntary Provision of an Environmental Public Good: Evidence from Residential Electricity Demand," NBER Working Papers 16608, National Bureau of Economic Research, Inc.
  5. Allcott, Hunt, 2011. "Social norms and energy conservation," Journal of Public Economics, Elsevier, Elsevier, vol. 95(9-10), pages 1082-1095, October.
  6. Allcott, Hunt, 2011. "Rethinking real-time electricity pricing," Resource and Energy Economics, Elsevier, Elsevier, vol. 33(4), pages 820-842.
  7. Severin Borenstein & Stephen P. Holland, 2003. "On the Efficiency of Competitive Electricity Markets With Time-Invariant Retail Prices," NBER Working Papers 9922, National Bureau of Economic Research, Inc.
  8. Jacobsen, Grant D. & Kotchen, Matthew J. & Vandenbergh, Michael P., 2012. "The behavioral response to voluntary provision of an environmental public good: Evidence from residential electricity demand," European Economic Review, Elsevier, Elsevier, vol. 56(5), pages 946-960.
  9. Lei Feng & Mark Seasholes, 2005. "Do Investor Sophistication and Trading Experience Eliminate Behavioral Biases in Financial Markets?," Review of Finance, Springer, Springer, vol. 9(3), pages 305-351, 09.
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Cited by:
  1. John Lynham & Kohei Nitta & Tatsuyoshi Saijo & Nori Tarui, 2014. "Why does real-time information reduce energy consumption?," Working Papers, University of Hawaii at Manoa, Department of Economics 201419, University of Hawaii at Manoa, Department of Economics.
  2. Louis-Gaëtan Giraudet & Sébastien Houde, 2014. "Double moral hazard and the energy efficiency gap," CIRED Working Papers hal-01016109, HAL.
  3. Koichiro Ito, 2014. "Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing," American Economic Review, American Economic Association, American Economic Association, vol. 104(2), pages 537-63, February.
  4. Mizobuchi, Kenichi & Takeuchi, Kenji, 2013. "The influences of financial and non-financial factors on energy-saving behaviour: A field experiment in Japan," Energy Policy, Elsevier, Elsevier, vol. 63(C), pages 775-787.
  5. John A. List & Michael K. Price, 2013. "Using Field Experiments in Environmental and Resource Economics," NBER Working Papers 19289, National Bureau of Economic Research, Inc.
  6. Ben Gilbert & Joshua S. Graff Zivin, 2013. "Dynamic Salience with Intermittent Billing: Evidence from Smart Electricity Meters," NBER Working Papers 19510, National Bureau of Economic Research, Inc.
  7. Andrea Szabo & Gergely Ujhelyi, 2014. "Can Information Reduce Nonpayment for Public Utilities? Experimental Evidence from South Africa," Working Papers, Department of Economics, University of Houston 2014-114-31, Department of Economics, University of Houston.
  8. Hunt Allcott & Richard Sweeney, 2014. "Information Disclosure through Agents: Evidence from a Field Experiment," NBER Working Papers 20048, National Bureau of Economic Research, Inc.

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