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Heterogeneity in the price response of residential electricity demand: A dynamic approach for Germany

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  • Frondel, Manuel
  • Kussel, Gerhard
  • Sommer, Stephan

Abstract

To provide the basis for evaluating the effectiveness of price policies, this paper contributes to the literature by estimating the heterogeneity in the response of residential electricity demand to price increases across household types. Drawing on household panel data from the German Residential Energy Consumption Survey (GRECS) that span over nine years (2006–2014), we gauge the response of residential electricity demand to price increases on the basis of the dynamic Blundell-Bond estimator to account for potential simultaneity and endogeneity problems, as well as Nickell bias. Estimating short- and long-run price elasticities of −0.44 and −0.66, respectively, our results indicate that price measures may be effective in dampening residential electricity consumption, particularly in the long run. Yet, we also find that responses to price changes are very heterogeneous across household types, an outcome that has important implications for policy-making. Most notably, we do not find any significant price response for low-income households.

Suggested Citation

  • Frondel, Manuel & Kussel, Gerhard & Sommer, Stephan, 2019. "Heterogeneity in the price response of residential electricity demand: A dynamic approach for Germany," Resource and Energy Economics, Elsevier, vol. 57(C), pages 119-134.
  • Handle: RePEc:eee:resene:v:57:y:2019:i:c:p:119-134
    DOI: 10.1016/j.reseneeco.2019.03.001
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    Cited by:

    1. Daruwala, Farhad & Denton, Frank T. & Mountain, Dean C., 2020. "One size may not fit all: Welfare benefits and cost reductions with optional differentiated household electricity rates," Resource and Energy Economics, Elsevier, vol. 61(C).
    2. Frondel, Manuel, 2019. "CO2-Bepreisung in den nicht in den Emissionshandel integrierten Sektoren: Optionen für eine sozial ausgewogene Ausgestaltung," RWI Materialien 130, RWI - Leibniz-Institut für Wirtschaftsforschung.

    More about this item

    Keywords

    Dynamic panel methods; Instrumental variable approach;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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