- Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing
American Economic Review, 104(2): 537-63, 2014.
- Abstract | Slides | NBER WP | EI WP
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 suboptimizing behavior makes nonlinear pricing unsuccessful in achieving its policy goal of energy conservation and critically changes the welfare implications of nonlinear pricing.
- Asymmetric Incentives in Subsidies: Evidence from a Large-Scale Electricity Rebate Program
American Economic Journal: Economic Policy, forthcoming.
- Abstract | NBER WP | EI WP | E2e WP
Many countries use substantial public funds to subsidize reductions in negative externalities. Such policy designs create asymmetric incentives because increases in externalities remain unpriced. I investigate the implications of such policies by using a regression discontinuity design in California's electricity rebate program. Using household-level panel data, I find that the incentive produced precisely estimated zero treatment effects on energy conservation in coastal areas. In contrast, the rebate induced short-run and long-run consumption reductions in inland areas. Income, climate, and air conditioner saturation significantly drive the heterogeneity. Finally, I provide a cost-effectiveness analysis and investigate how to improve the policy design.
- Sequential Markets, Market Power and Arbitrage
Revise and resubmit, American Economic Review. Current draft: November 2014. (with Mar Reguant)
- Abstract | NBER WP | RIETI
We develop a theoretical framework to characterize strategic behavior in sequential markets under imperfect competition and limited arbitrage. Our theory predicts that these two elements can generate a systematic price premium. We test the model predictions using micro-data from the Iberian electricity market. We show that the observed price differences and firm behavior are consistent with the model. Finally, we quantify the welfare effects of arbitrage using a structural model. In our setting, we show that full arbitrage is not necessarily welfare-enhancing in the presence of market power, reducing consumer costs but decreasing productive efficiency.
- The Economics of Attribute-Based Regulation: Theory and Evidence from Fuel-Economy Standards
In submission. Current draft: September 2014. (with James M. Sallee)
- Abstract | NBER WP | E2e WP | Nikkei Business | RIETI
We develop a theoretical framework to study "attribute-based regulations," under which regulatory compliance depends upon a secondary attribute that is not the intended target of the regulation. Our theory characterizes the distortionary costs and potential benefits of attribute basing. To test our theoretical predictions, we exploit quasi-experiments in Japanese fuel economy regulations, under which fuel-economy targets are step functions of vehicle weight. Using bunching analysis, we identify large distortions in vehicle weight. We then develop a method that leverages double-notched policies to conduct welfare analysis. We evaluate policy alternatives and quantify the important welfare trade-offs created by attribute-based policies.
- The Persistence of Moral Suasion and Economic Incentives: Field Experimental Evidence from Energy Demand
In submission. Current draft: January 2015. (with Takanori Ida and Makoto Tanaka)
- Abstract | NBER WP | EI WP | E2e WP | Washington Post | Forbes | RIETI
Firms and governments often use moral suasion and economic incentives to influence intrinsic and extrinsic motivations for various economic activities. To investigate the persistence of such interventions, we randomly assigned households to moral suasion and dynamic pricing that stimulate energy conservation during peak demand hours. Using household-level consumption data for 30-minute intervals, we find significant short-run effects of moral suasion, but the effects diminished quickly after repeated interventions. Economic incentives produced larger and persistent effects, which induced habit formation after the final interventions. While each policy produces substantial welfare gains, economic incentives provide particularly large gains when we consider persistence.
- How Do Consumers Respond to Nonlinear Pricing? Evidence from Household Water Demand
Current Draft: April 2013.
- Reforming Japan's Electricity Sector: Abe's Push for Deregulation
National Bureau of Asian Research, October 2013
- Do Energy Rebate Programs Encourage Conservation?
Stanford Institute for Economic Policy Research Policy Brief #2419, April 2012
- Reforming Japan's Power Industry
Presentation at "One Year After Japan's 3/11 Disaster: Reforming Japan's Energy Sector, Governance, and Economy," Stanford University, February 2012