Towards understanding the role of price in residential electricity choices: Evidence from a natural experiment

• Published in: Journal of economic behavior & organization 2014-11, Vol.107, p.191-208
• Main Authors: Jessoe, Katrina, Rapson, David, Smith, Jeremy B.
• Format: Article
• Language: English
• Subjects: Consumer choice; Electric rates; Electric utilities; Energy; Energy efficiency; Energy policy; Environmental policy; Natural experiment; Product choice; Studies
• ISSN: 0167-2681; 1879-1751
• DOI: 10.1016/j.jebo.2014.03.009

•We analyze an electricity pricing program which gives rise to a natural experiment.•Consumers reduced electricity usage in response to a decrease in electricity prices.•Results suggest that factors aside from price influence customer choice. We examine a choice setting in which residential electricity consumers may respond to non-financial incentives in addition to prices. Using data from a natural field experiment that exposed some households to a change in their electricity rates, we find that households reduced electricity usage in response to a contemporaneous decrease in electricity prices. This provides clear evidence that other factors – potentially encompassing non-monetary and dynamic considerations – can influence consumer choice, and even dominate the static price response in some cases. A comprehensive understanding of household behavior in energy markets is essential for the effective implementation of market-based energy and environmental policies. The documentation of our result and others like it is a necessary step in achieving such an understanding.