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A Comparison of Electricity-Pricing Programs: Economic Efficiency, Cost Recovery, and Income Distribution

Author

Listed:
  • Ming-Feng Hung

    (Tamkang University)

  • Bin-Tzong Chie

    (Tamkang University)

  • Huei-Chu Liao

    (Tamkang University)

Abstract

This article empirically compares four electricity-pricing programs—increasing-block pricing (IBP); floating increasing-block pricing (FIBP); free market pricing (FMP); and a price-cum-trade incentive system (PTS)—in terms of efficiency, cost recovery, and income distribution by using the residential electricity data of Taiwan. The research results show that IBP and FIBP suffer from the same problem: It is hard to be cost-neutral. Further, FMP is economically efficient while favoring the electric utility over the households. PTS—which is a pricing program that satisfies the second fundamental theorem of welfare economics—shows a better ability to consider economic efficiency and equity simultaneously.

Suggested Citation

  • Ming-Feng Hung & Bin-Tzong Chie & Huei-Chu Liao, 2020. "A Comparison of Electricity-Pricing Programs: Economic Efficiency, Cost Recovery, and Income Distribution," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 56(1), pages 143-163, February.
    • Handle: RePEc:kap:revind:v:56:y:2020:i:1:d:10.1007_s11151-019-09696-4
    DOI: 10.1007/s11151-019-09696-4
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    References listed on IDEAS

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    Cited by:

    1. Anette Boom & Sebastian Schwenen, 2021. "Is real-time pricing smart for consumers?," Journal of Regulatory Economics, Springer, vol. 60(2), pages 193-213, December.

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    More about this item

    Keywords

    Residential electricity; Increasing-block pricing; Efficiency; Cost recovery; Income distribution;
    All these keywords.

    JEL classification:

    • 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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