Payment Design and Price Elasticity

Imelda Imelda, Anna Lou Abatayo and Budy Resusodarmo

No 19778, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Prepaid electricity meters change when consumers pay, but not the price they face. Using household billing data from Indonesia and overlapping reforms to metering and electricity tariffs, we show that payment design affects both the level and price responsiveness of electricity demand. Conversion to prepaid metering reduces consumption by 12% before prices change; when prices increase, the price elasticity doubles. Greater responsiveness persists for at least six years. An incentivized survey shows that 80% of prepaid users would forgo compensation rather than return to postpaid billing. Payment design can therefore strengthen the effectiveness of electricity pricing policy.

Keywords: Price elasticity; Electricity; Emerging economies; Indonesia; Energy conservation (search for similar items in EconPapers)
JEL-codes: I30 Q41 Q48 (search for similar items in EconPapers)
Date: 2024-12
New Economics Papers: this item is included in nep-ene, nep-env and nep-pay
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