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Liquidity Constraints and High Electricity Use

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  • Brutscher, P.

Abstract

It is a well established fact that electricity use increases with income. What is less well known is that - despite the positive correlation between electricity use and income - a significant portion of low-income households consume very large amounts of electricity. In this paper, we make a first step towards better understanding this phenomenon. Specifically, we test the hypothesis that the high electricity use is driven by the fact that low-income households find it difficult to purchase heating oil upfront/in bulk and so use electricity to heat their homes. Using data from the Northern Ireland Continuous Household Survey and the Living Cost and Food Survey, we show that an exogenous increase in income leads to an increase (decrease) in the probability that low-income households use oil (electricity) for heating by approximately 40 (30) percentage points. In addition, we provide evidence which is at odds with a set of alternative explanations for our findings.

Suggested Citation

  • Brutscher, P., 2011. "Liquidity Constraints and High Electricity Use," Cambridge Working Papers in Economics 1122, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:1122
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    References listed on IDEAS

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    1. David S. Lee & Thomas Lemieux, 2010. "Regression Discontinuity Designs in Economics," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 281-355, June.
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    Cited by:

    1. Brutscher, P-B., 2012. "Making Sense of Oil Stamp Saving Schemes," Cambridge Working Papers in Economics 1203, Faculty of Economics, University of Cambridge.
    2. Michael G. Pollitt & Irina Shaorshadze, 2013. "The role of behavioural economics in energy and climate policy," Chapters, in: Roger Fouquet (ed.), Handbook on Energy and Climate Change, chapter 24, pages 523-546, Edward Elgar Publishing.
    3. 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.

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    More about this item

    Keywords

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    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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