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The Long-Run Dynamics of Electricity Demand: Evidence from Municipal Aggregation

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  • Tatyana Deryugina
  • Alexander MacKay
  • Julian Reif

Abstract

We study the dynamics of residential electricity demand by exploiting a natural experiment that produced large and long-lasting price changes in over 250 Illinois communities. Using a flexible difference-in-differences matching approach, we estimate that the price elasticity of demand grows from –0:09 in the first six months to –0:27 two years later. We also estimate a more sophisticated model in which usage is a function of past and future prices, and we find similar elasticity patterns. Our findings highlight the importance of accounting for consumption dynamics when evaluating energy policy.

Suggested Citation

  • Tatyana Deryugina & Alexander MacKay & Julian Reif, 2017. "The Long-Run Dynamics of Electricity Demand: Evidence from Municipal Aggregation," NBER Working Papers 23483, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23483
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    Cited by:

    1. Alberini, Anna & Khymych, Olha & Ščasný, Milan, 2020. "Responsiveness to energy price changes when salience is high: Residential natural gas demand in Ukraine," Energy Policy, Elsevier, vol. 144(C).
    2. Sébastien Houde & Erica Myers, 2019. "Are Consumers Attentive to Local Energy Costs? Evidence from the Appliance Market," NBER Working Papers 25591, National Bureau of Economic Research, Inc.
    3. Carvallo, Juan Pablo & Zhang, Nan & Murphy, Sean P. & Leibowicz, Benjamin D. & Larsen, Peter H., 2020. "The economic value of a centralized approach to distributed resource investment and operation," Applied Energy, Elsevier, vol. 269(C).
    4. Sebastian Gechert & Katja Rietzler & Sven Schreiber & Ulrike Stein, 2019. "Wirtschaftliche Instrumente für eine klima- und sozialverträgliche CO2-Bepreisung," IMK Studies 65-2019, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    5. Jonathon M. Becker, 2020. "Tradable performance standards in a dynamic context," Working Papers 2020-03, Colorado School of Mines, Division of Economics and Business.
    6. ITO Koichiro & ZHANG Shuang, 2020. "Reforming Inefficient Energy Pricing: Evidence from China," Discussion papers 20062, Research Institute of Economy, Trade and Industry (RIETI).
    7. Julien Xavier Daubanes & Fanny Henriet & Katheline Schubert, 2017. "More Gas, Less Coal, and Less CO2? Unilateral CO2 Reduction Policy with More than One Carbon Energy Source," CESifo Working Paper Series 6697, CESifo.
    8. Nyagwachi, Abel Otwori & Chelwa, Grieve & van Walbeek, Corné, 2020. "The effect of tobacco- and alcohol-control policies on household spending patterns in Kenya: An approach using matched difference in differences," Social Science & Medicine, Elsevier, vol. 256(C).
    9. Gilbert, Ben & Graff Zivin, Joshua S., 2020. "Dynamic corrective taxes with time-varying salience," Journal of Environmental Economics and Management, Elsevier, vol. 103(C).
    10. Saskia Lavrijssen & Arturo Carrillo Parra, 2017. "Radical Prosumer Innovations in the Electricity Sector and the Impact on Prosumer Regulation," Sustainability, MDPI, Open Access Journal, vol. 9(7), pages 1-21, July.
    11. Fullerton, Don & Ta, Chi L., 2020. "Costs of energy efficiency mandates can reverse the sign of rebound," Journal of Public Economics, Elsevier, vol. 188(C).
    12. Koichiro Ito & Shuang Zhang, 2020. "Reforming Inefficient Energy Pricing: Evidence from China," NBER Working Papers 26853, National Bureau of Economic Research, Inc.
    13. Mar Reguant, 2018. "The Efficiency and Sectoral Distributional Implications of Large-Scale Renewable Policies," NBER Working Papers 24398, National Bureau of Economic Research, Inc.
    14. Baikowski, Martin, 2018. "Impacts of consumers' electricity price misperceptions," CAWM Discussion Papers 105, University of Münster, Center of Applied Economic Research Münster (CAWM).
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    16. Doda, Baran & Fankhauser, Samuel, 2020. "Climate policy and power producers: the distribution of pain and gain," LSE Research Online Documents on Economics 102960, London School of Economics and Political Science, LSE Library.
    17. Baran Doda, Sam Fankhauser, 2017. "Energy policy and the power sector in the long run," GRI Working Papers 276, Grantham Research Institute on Climate Change and the Environment.

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • 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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