Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing
Koichiro Ito ()
American Economic Review, 2014, vol. 104, issue 2, 537-63
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.
JEL-codes: D12 L11 L94 L98 Q41 (search for similar items in EconPapers)
Note: DOI: 10.1257/aer.104.2.537
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (266) Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to AEA members and institutional subscribers.
Working Paper: Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:104:y:2014:i:2:p:537-63
Ordering information: This journal article can be ordered from
Access Statistics for this article
American Economic Review is currently edited by Esther Duflo
More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().