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Does Energy Consumption Respond to Price Shocks? Evidence from a Regression-Discontinuity Design

Author

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  • Paulo Bastos

    ()

  • Lucio Castro
  • Julian Cristia

    ()

  • Carlos Scartascini

    ()

Abstract

This paper exploits unique features of a recently introduced tariff schedule for natural gas in Buenos Aires to estimate the short-run impact of price shocks on residential energy utilization. The schedule induces a non-linear and nonmonotonic relationship between households’ accumulated consumption and unit prices, thus generating an exogenous source of variation in perceived prices, which is exploited in a regression-discontinuity design. The estimates reveal that a price increase in the utility bill received by consumers causes a substantial and prompt decline in gas consumption. Hence they suggest that policy interventions via the price mechanism, such as price caps and subsidies, are powerful instruments to influence residential energy utilization patterns, even within a short time span.

Suggested Citation

  • Paulo Bastos & Lucio Castro & Julian Cristia & Carlos Scartascini, 2011. "Does Energy Consumption Respond to Price Shocks? Evidence from a Regression-Discontinuity Design," Research Department Publications 4702, Inter-American Development Bank, Research Department.
  • Handle: RePEc:idb:wpaper:4702
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    Cited by:

    1. W. D. Gregori, 2014. "Fiscal Rules and Public Spending: Evidence from Italian Municipalities," Working Papers wp923, Dipartimento Scienze Economiche, Universita' di Bologna.
    2. Gerard, Francois, 2013. "What Changes Energy Consumption, and for How Long? New Evidence from the 2001 Brazilian Electricity Crisis," Discussion Papers dp-13-06, Resources For the Future.

    More about this item

    Keywords

    Energy consumption; Elasticity of demand; Regulation of public utilities; Regression discontinuity design; Public policy;

    JEL classification:

    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • 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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