- Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing
American Economic Review, 104(2): 537-63, 2014.
- Abstract | Slides | Appendix | 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.
- The Economics of Attribute-Based Regulation: Theory and Evidence from Fuel-Economy Standards
Current draft: September 2014. (with James M. Sallee)
This paper analyzes "attribute-based regulations," in which regulatory compliance depends upon some secondary attribute that is not the intended target of the regulation. For example, in many countries fuel-economy standards mandate that vehicles have a certain fuel economy, but heavier or larger vehicles are allowed to meet a lower standard. Such policies create perverse incentives to distort the attribute upon which compliance depends. We develop a theoretical framework to predict how actors will respond to attribute-based regulations and to characterize the welfare implications of these responses. To test our theoretical predictions, we exploit quasi-experimental variation in Japanese fuel economy regulations, under which fuel-economy targets are downward-sloping step functions of vehicle weight. Our bunching analysis reveals large distortions to vehicle weight induced by the policy. We then leverage panel data on vehicle redesigns to empirically investigate the welfare implications of attribute-basing, including both potential benefits and likely costs. This latter analysis concerns a "double notched" policy; vehicles are eligible for an incentive if they are above a step function in the two-dimensional fuel economy by weight space. We develop a procedure for analyzing the response to such policies that is new to the literature.
- The Persistence of Intrinsic and Extrinsic Motivation: Experimental Evidence from Energy Demand
A revised version available soon. Email me for a preliminary draft. (with Takanori Ida and Makoto Tanaka)
- Blowin' in the Wind: Sequential Markets, Market Power and Arbitrage
Revised, March 2014. (with Mar Reguant). Please email me for a preliminary draft.
- How Do Consumers Respond to Nonlinear Pricing ? Evidence from Household Water Demand
Revised, 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