Working Paper: NBER ID: w28413
Authors: Koichiro Ito; Takanori Ida; Makoto Tanaka
Abstract: We study a problem in which policymakers need to screen self-selected individuals by unobserved heterogeneity in social welfare gains from a policy intervention. In our framework, the marginal treatment effects and marginal treatment responses arise as key statistics to characterize social welfare. We apply this framework to a randomized field experiment on electricity plan choice. Consumers were offered welfare-improving dynamic pricing with randomly assigned take-up incentives. We find that price-elastic consumers—who generate larger welfare gains—are more likely to self-select. Our counterfactual simulations quantify the optimal take-up incentives that exploit observed and unobserved heterogeneity in selection and welfare gains.
Keywords: Electricity Pricing; Dynamic Pricing; Welfare Gains; Consumer Choice
JEL Codes: L94; Q41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| mandatory takeup policy (G18) | consumer disutility from dynamic pricing (D11) |
| expected savings from dynamic pricing (D49) | selection into dynamic pricing plans (D49) |
| price-elastic consumers (D11) | selection into dynamic pricing plans (D49) |
| takeup incentive (O31) | welfare gains (D69) |
| demand elasticity (D12) | marginal social welfare gain from dynamic pricing (D40) |