Towards Understanding the Role of Price in Residential Electricity Choices: Evidence from a Natural Experiment

We examine a choice setting in which residential electricity consumers may respond to incentives other than contemporaneous prices. We test predictions from the standard model of utility maximization using data from a natural field experiment that exposed some households to a change in their electricity rates. Households reduce electricity usage in response to a decrease in electricity prices, suggesting that factors aside from price influence customer choice. An understanding of household behavior in energy markets is essential for the effective implementation of climate change mitigation policy. Documenting this and similar results is a necessary step in achieving such an understanding. ∗We would like to thank Michael Anderson, Marcus Asplund, Anette Boom, Jim Bushnell, Lucas Davis, Kelsey Jack, Kevin Lang, Alan Meier, Michael Manove, Marc Rysman, Johannes Schmieder, and the many other participants in seminars at Boston University Economics, the UC Energy Institute, UC Berkeley ARE, UC San Diego Economics, Copenhagen Business School Economics, the University of New South Wales Economics, and the JEBO conference at University of Tennessee for their comments. Bo Young Choi and Brock Smith provided excellent research assistance. Financial support for this project was provided by UCE3. Rapson thanks the Energy Institute at Haas for support under a research contract from the California Energy Commission. The views presented are those of the authors and do not reflect those of Analysis Group. Any errors are our own. †E-mail: [email protected]; Website: http://kkjessoe.ucdavis.edu/ ‡E-mail: [email protected]; Website: http://www.econ.ucdavis.edu/faculty/dsrapson §111 Huntington Avenue, Tenth Floor, Boston, MA 02199. The author is an Associate at Analysis Group, Inc. Research for this article was undertaken when he was a PhD student at Boston University.