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The Redistributional Impact of Nonlinear Electricity Pricing

Author

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  • Severin Borenstein

Abstract

Electricity regulators often mandate increasing-block pricing (IBP)—i.e., marginal price increases with the customer's average daily usage—to protect low-income households from rising costs. IBP has no cost basis, raising a classic conflict between efficiency and distributional goals. Combining household-level utility billing data with census data on income, I find that IBP in California results in modest wealth redistribution, but creates substantial deadweight loss relative to the transfers. I also show that a common approach to studying income distribution effects by using median household income within census block groups may be misleading. (JEL D31, L11, L51, L94, L98, Q41, Q48)

Suggested Citation

  • Severin Borenstein, 2012. "The Redistributional Impact of Nonlinear Electricity Pricing," American Economic Journal: Economic Policy, American Economic Association, vol. 4(3), pages 56-90, August.
  • Handle: RePEc:aea:aejpol:v:4:y:2012:i:3:p:56-90
    Note: DOI: 10.1257/pol.4.3.56
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    References listed on IDEAS

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    1. Frank A. Scott, Jr., 1981. "Estimating Recipient Benefits and Waste from Lifeline Electricity Rates," Land Economics, University of Wisconsin Press, vol. 57(4), pages 536-543.
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    6. Koichiro Ito, 2014. "Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing," American Economic Review, American Economic Association, vol. 104(2), pages 537-563, February.
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    8. Michael Hennessy, 1984. "The Evaluation of Lifeline Electricity Rates," Evaluation Review, , vol. 8(3), pages 327-346, June.
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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • 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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