Kenneth Gillingham (2/21/18)

Kenneth Gillingham

Yale University

“Experimental Evidence on the Effect of Information and Pricing on Residential Electricity Consumption”

Abstract: Residential electricity prices do not generally respond to wholesale prices and thus are disconnected from the marginal cost of generation. This study examines a field experiment in Texas that includes both pricing and informational interventions to encourage energy conservation during summer peak load days when the marginal cost of generation is the highest. Using data at the appliance-minute-level, we estimate a price elasticity of electricity demand of -0.17, and find that over 60 percent of this response can be attributed to air conditioning. Conversely, we find neither passive nor active information provision results in reduced electricity consumption during the peak load hours of typical peak summer days. By disentangling the price elasticity at the appliance-level, these results show that behavior changes are limited to a few appliances, demonstrating the mechanisms underlying the consumer response to electricity prices.