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Do consumers respond to marginal or average price? : evidence from nonlinear electricity pricing Preview this item
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Do consumers respond to marginal or average price? : evidence from nonlinear electricity pricing

Author: Koichiro Ito; National Bureau of Economic Research.
Publisher: Cambridge, Mass. : National Bureau of Economic Research, ©2012.
Series: Working paper series (National Bureau of Economic Research), no. 18533.
Edition/Format:   eBook : Document : EnglishView all editions and formats
Database:WorldCat
Summary:
Nonlinear pricing and taxation complicate economic decisions by creating multiple marginal prices for the same good. This paper provides a framework to uncover consumers' perceived price of nonlinear price schedules. I exploit price variation at spatial discontinuities in electricity service areas, where households in the same city experience substantially different nonlinear pricing. Using household-level panel  Read more...
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Details

Material Type: Document, Internet resource
Document Type: Internet Resource, Computer File
All Authors / Contributors: Koichiro Ito; National Bureau of Economic Research.
OCLC Number: 818646204
Notes: Title from http://www.nber.org/papers/18533 viewed November 19, 2012.
"November 2012."
Description: 1 online resource (45 pages) : illustrations, maps.
Series Title: Working paper series (National Bureau of Economic Research), no. 18533.
Responsibility: Koichiro Ito.

Abstract:

Nonlinear pricing and taxation complicate economic decisions by creating multiple marginal prices for the same good. This paper provides a framework to uncover consumers' perceived price of nonlinear price schedules. I exploit price variation at spatial discontinuities in electricity service areas, where households in the same city experience substantially different nonlinear pricing. Using household-level panel data from administrative records, I find strong evidence that consumers respond to average price rather than marginal or expected marginal price. This sub-optimizing behavior makes nonlinear pricing unsuccessful in achieving its policy goal of energy conservation and critically changes the welfare implications of nonlinear pricing.
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