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Towards understanding the role of price in residential electricity choices: Evidence from a natural experiment

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  • Jessoe, Katrina
  • Rapson, David
  • Smith, Jeremy B.

Abstract

We examine a choice setting in which residential electricity consumers may respond to non-financial incentives in addition to prices. Using data from a natural field experiment that exposed some households to a change in their electricity rates, we find that households reduced electricity usage in response to a contemporaneous decrease in electricity prices. This provides clear evidence that other factors – potentially encompassing non-monetary and dynamic considerations – can influence consumer choice, and even dominate the static price response in some cases. A comprehensive understanding of household behavior in energy markets is essential for the effective implementation of market-based energy and environmental policies. The documentation of our result and others like it is a necessary step in achieving such an understanding.

Suggested Citation

  • Jessoe, Katrina & Rapson, David & Smith, Jeremy B., 2014. "Towards understanding the role of price in residential electricity choices: Evidence from a natural experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 191-208.
    • Handle: RePEc:eee:jeborg:v:107:y:2014:i:pa:p:191-208
    DOI: 10.1016/j.jebo.2014.03.009
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    2. Makena Coffman & Paul Bernstein & Sherilyn Wee & Aida Arik, 2016. "Estimating the Opportunity for Load-Shifting in Hawaii: An Analysis of Proposed Residential Time-of-Use Rates," Working Papers 2016-10, University of Hawaii Economic Research Organization, University of Hawaii at Manoa.
    3. Li, Li & Jeuland, Marc, 2023. "Household water savings and response to dynamic incentives under nonlinear pricing," Journal of Environmental Economics and Management, Elsevier, vol. 119(C).
    4. Katrina Jessoe, Maya Papineau, and David Rapson, 2020. "Utilities Included: Split Incentives in Commercial Electricity Contracts," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5), pages 271-303.
    5. Makena Coffman & Paul Bernstein & Derek Stenclik & Sherilyn Wee & Aida Arik, 2018. "Integrating Renewable Energy with Time Varying Pricing," Working Papers 2018-6, University of Hawaii Economic Research Organization, University of Hawaii at Manoa.
    6. Mattias Vesterberg and Chandra Kiran B. Krishnamurthy, 2016. "Residential End-use Electricity Demand: Implications for Real Time Pricing in Sweden," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    7. Qiu, Yueming & Colson, Gregory & Wetzstein, Michael E., 2017. "Risk preference and adverse selection for participation in time-of-use electricity pricing programs," Resource and Energy Economics, Elsevier, vol. 47(C), pages 126-142.
    8. Lang, Corey & Qiu, Yueming (Lucy) & Dong, Luran, 2023. "Increasing voluntary enrollment in time-of-use electricity rates: Findings from a survey experiment," Energy Policy, Elsevier, vol. 173(C).
    9. Chen, Victor L. & Delmas, Magali A. & Locke, Stephen L. & Singh, Amarjeet, 2017. "Information strategies for energy conservation: A field experiment in India," Energy Economics, Elsevier, vol. 68(C), pages 215-227.
    10. Azarova, Valeriya & Cohen, Jed J. & Kollmann, Andrea & Reichl, Johannes, 2020. "Reducing household electricity consumption during evening peak demand times: Evidence from a field experiment," Energy Policy, Elsevier, vol. 144(C).
    11. Jacobsen, Grant D., 2015. "Do energy prices influence investment in energy efficiency? Evidence from energy star appliances," Journal of Environmental Economics and Management, Elsevier, vol. 74(C), pages 94-106.
    12. Mi, Lingyun & Gan, Xiaoli & Sun, Yuhuan & Lv, Tao & Qiao, Lijie & Xu, Ting, 2021. "Effects of monetary and nonmonetary interventions on energy conservation: A meta-analysis of experimental studies," Renewable and Sustainable Energy Reviews, Elsevier, vol. 149(C).
    13. Capitán, Tabaré & Alpízar, Francisco & Madrigal-Ballestero, Róger & Pattanayak, Subhrendu K., 2021. "Time-varying pricing may increase total electricity consumption: Evidence from Costa Rica," Resource and Energy Economics, Elsevier, vol. 66(C).
    14. Cl'emence Alasseur & Ivar Ekeland & Romuald Elie & Nicol'as Hern'andez Santib'a~nez & Dylan Possamai, 2017. "An adverse selection approach to power pricing," Papers 1706.01934, arXiv.org, revised Sep 2019.

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