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

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  • Sirin, Selahattin Murat
  • Gonul, Mustafa Sinan

Abstract

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.

Suggested Citation

  • Sirin, Selahattin Murat & Gonul, Mustafa Sinan, 2016. "Behavioral aspects of regulation: A discussion on switching and demand response in Turkish electricity market," Energy Policy, Elsevier, vol. 97(C), pages 591-602.
  • Handle: RePEc:eee:enepol:v:97:y:2016:i:c:p:591-602
    DOI: 10.1016/j.enpol.2016.08.005
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    References listed on IDEAS

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    1. Michael G. Pollitt & Irina Shaorshadze, 2013. "The role of behavioural economics in energy and climate policy," Chapters,in: Handbook on Energy and Climate Change, chapter 24, pages 523-546 Edward Elgar Publishing.
    2. Wolfgang Pesendorfer, 2006. "Behavioral Economics Comes of Age: A Review Essay on Advances in Behavioral Economics," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 712-721, September.
    3. 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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    Cited by:

    1. Fontana, Magda & Iori, Martina & Nava, Consuelo Rubina, 2017. "Switching Behavior and the Liberalization of the Italian Electricity Retail Market. Logistic and Mixed Effect Bayesian Estimations of Consumer Choice," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201721, University of Turin.

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