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

UCD-ITS-RP-14-21

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Suggested Citation:
Jessoe, Katrina, David Rapson, Jeremy Smith (2014) Towards Understanding the Role of Price in Residential Electricity Choices: Evidence from a Natural Experiment. Journal of Economic Behavior and Organization in press

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.