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Behavioral aspects of regulation: A discussion on switching and demand response in Turkish electricity market

Listed author(s):
  • Sirin, Selahattin Murat
  • Gonul, Mustafa Sinan

Electricity sector has been transformed from state-owned monopolistic utilities to competitive markets with an aim to promote incentives for improving efficiency, reducing costs and increasing service quality to customers. One of the cardinal assumptions of the liberalized and competitive electricity markets is the rational actor, and decision-makers are assumed to make the best decisions that maximize their utility. However, a vast literature on behavioral economics has shown the weakness of economic theory in explaining and predicting individuals’ decision-making behavior. This issue is quite important for competition in electricity markets in which consumers’ preferences have a significant role. Despite its importance, this issue has almost been neglected in Turkey, which has taken major steps in electricity sector restructuring. Therefore, this paper aims to examine switching and demand response behavior in Turkish electricity market by using multiple correspondence and panel data analysis, and findings are discussed in light of the neoclassical and behavioral economics literature. Analyses’ results show that consumers’ switching and demand response behavior is consistent with the neoclassical literature to some extent; however, behavioral factors are also affecting consumers’ decisions. Furthermore, there are systemic problems that hinder effective functioning of the electricity market and restrict competition.

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File URL: http://www.sciencedirect.com/science/article/pii/S0301421516304219
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Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 97 (2016)
Issue (Month): C ()
Pages: 591-602

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Handle: RePEc:eee:enepol:v:97:y:2016:i:c:p:591-602
DOI: 10.1016/j.enpol.2016.08.005
Contact details of provider: Web page: http://www.elsevier.com/locate/enpol

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  1. Herbert A. Simon, 1955. "A Behavioral Model of Rational Choice," The Quarterly Journal of Economics, Oxford University Press, vol. 69(1), pages 99-118.
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  9. Allcott, Hunt, 2011. "Rethinking real-time electricity pricing," Resource and Energy Economics, Elsevier, vol. 33(4), pages 820-842.
  10. Daniel Kahneman & Jack L. Knetsch & Richard H. Thaler, 1991. "Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 193-206, Winter.
  11. McCalley, L.T., 2006. "From motivation and cognition theories to everyday applications and back again: the case of product-integrated information and feedback," Energy Policy, Elsevier, vol. 34(2), pages 129-137, January.
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  14. Farrell, Joseph & Klemperer, Paul, 2007. "Coordination and Lock-In: Competition with Switching Costs and Network Effects," Handbook of Industrial Organization, Elsevier.
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