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Addressing self-disconnection among prepayment energy consumers: A behavioural approach

  • Marta Rocha
  • Michelle Baddeley
  • Michael G. Pollitt

This paper uses insights from the study of self-control in decision-making to remedy the problem of self-disconnection among energy prepayment consumers. Self-disconnection happens when consumers exhaust all available credit in their meter and are left without supply of energy. This has serious consequences for the wellbeing of consumers and may increase firms' costs. We design a mechanism composed of a commitment contract and a reminder in order to minimize the number of self—disconnectons. We empirically assess this mechanism by examining (1) the determinants of self-disconnecton and (2) the choice of different commitment contracts. we show that self-control plays a role in self-disconnection and we are able to identify in our sample, those consumers who benefit from a commitment contract. Moreover we find a demand to commitment and an opportunity to save among those consumers who need a commitment contract.

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/cwpe1353.pdf
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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 1353.

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Date of creation: 12 May 2013
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Handle: RePEc:cam:camdae:1353
Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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  1. Ted O' Donoghue & Matthew Rabin, 2001. "Choice and Procrastination," Microeconomics 0012002, EconWPA.
  2. O'Sullivan, Kimberley C. & Howden-Chapman, Philippa L. & Fougere, Geoffrey M. & Hales, Simon & Stanley, James, 2013. "Empowered? Examining self-disconnection in a postal survey of electricity prepayment meter consumers in New Zealand," Energy Policy, Elsevier, vol. 52(C), pages 277-287.
  3. Richard Thaler & Shlomo Benartzi, 2004. "Save more tomorrow: Using behavioral economics to increase employee saving," Natural Field Experiments 00337, The Field Experiments Website.
  4. Nava Ashraf & Dean S. Karlan & Wesley Yin, 2005. "Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines," Working Papers 917, Economic Growth Center, Yale University.
  5. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
  6. Dean Karlan & Nava Ashaf & Wesley Yin, 2004. "Tying odysseus to the mast: Evidence from a commitment savings product in the philippines," Natural Field Experiments 00206, The Field Experiments Website.
  7. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
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