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Does Energy Consumption Respond to Price Shocks? Evidence from a Regression‐Discontinuity Design
Author(s) -
Bastos Paulo,
Castro Lucio,
Cristia Julian,
Scartascini Carlos
Publication year - 2015
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12074
Subject(s) - exploit , regression discontinuity design , economics , consumption (sociology) , schedule , price shock , energy consumption , econometrics , discontinuity (linguistics) , tariff , unit (ring theory) , monetary economics , computer science , international economics , statistics , engineering , mathematical analysis , mathematics education , mathematics , electrical engineering , social science , computer security , management , sociology
We exploit unique features of a recently introduced tariff schedule for natural gas in B uenos A ires to estimate the short‐run impact of price shocks on residential energy utilization. The schedule induces a non‐linear and non‐monotonic relationship between households' accumulated consumption and unit prices, thus generating exogenous price variation, which we exploit in a regression‐discontinuity design. We find that a price increase causes a prompt and significant decline in gas consumption. The results also indicate that consumers respond more to recent past bills than to expected prices, which argues against an assumption of perfect awareness of complex price schedules by consumers.