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An Experimental Study of Monthly Electricity Demand (In)elasticity

Abstract:
We document substantial rigidity in household electricity demand in response to large price shocks. We partnered with an electricity retailer to run a field experiment in which randomly-selected households received discounts of up to 50% on their total electricity bill or up to 95% off their per unit cost of electricity for a full month. We show that the quantity of electricity consumed was unaffected by these discounts. Exploiting rich billing, smart meter, and survey data, we document responses that are much more inelastic than previously observed in scenarios that raise prices for a few hours or raise or lower prices for indefinitely-long periods of time. Our results hold even among subgroups that we ex-ante believed were most likely to respond.

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Keywords: Price Elasticity, Energy Demand, Field Experiment

DOI: 10.5547/01956574.42.2.dbyr

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Published in Volume 42, Number 2 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

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