Utilities Included: Split Incentives in Commercial Electricity Contracts

Katrina Jessoe (kkjessoe@ucdavis.edu), Maya Papineau and David Rapson
Additional contact information
Katrina Jessoe: Department of Agricultural and Resource Economics, University of California, Davis, https://are.ucdavis.edu/people/faculty/katrina-jessoe/

No 17-07, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: This paper quantifies a tenant-side “split incentives” problem that exists when the largest commercial sector customers are on electricity-included property lease contracts causing them to face a marginal electricity price of zero. We use exogenous variation in weather shocks toshow that the largest firms on tenant-paid contracts use up to 14 percent less electricity in response to summer temperature fluctuations. The result is retrieved under weaker identifying assumptions than previous split incentives papers, and is robust when exposed to several opportunities to fail. The electricity reduction in response to temperature increases is likely to be a lower bound when generalized nationwide and suggests that policymakers should consider a sub-metering policy to expose the largest commercial tenants to the prevailing retail electricity price.

Keywords: Electricity; Principal-Agent Problem; Split Incentive; Contracts (search for similar items in EconPapers)
JEL-codes: D22 L14 Q51 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2017-05-01, Revised 2019-05-27
New Economics Papers: this item is included in nep-cta, nep-ene and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published: Carleton Economic Papers

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Related works:
Journal Article: Utilities Included: Split Incentives in Commercial Electricity Contracts (2020)
Working Paper: Utilities Included: Split Incentives in Commercial Electricity Contracts (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:car:carecp:17-07

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