Working Paper: NBER ID: w23483
Authors: Tatyana Deryugina; Alexander Mackay; Julian Reif
Abstract: We study the dynamics of residential electricity demand by exploiting a natural experiment that produced large and long-lasting price changes in over 250 Illinois communities. Using a flexible difference-in-differences matching approach, we estimate that the price elasticity of demand grows from –0:09 in the first six months to –0:27 two years later. We also estimate a more sophisticated model in which usage is a function of past and future prices, and we find similar elasticity patterns. Our findings highlight the importance of accounting for consumption dynamics when evaluating energy policy.
Keywords: Electricity demand; Price elasticity; Municipal aggregation; Energy policy
JEL Codes: D12; Q41; Q48
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Municipal aggregation (L97) | Electricity demand (L97) |
| Price changes due to municipal aggregation (L97) | Price elasticity of demand for residential electricity (L97) |
| Time (C41) | Price elasticity of demand for residential electricity (L97) |
| Price changes (P22) | Residential electricity usage (L94) |
| Short-run response (E44) | Long-run response (E19) |