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Utilities Included: Split Incentives in Commercial Electricity Contracts

Katrina Jessoe (), Maya Papineau () and David Rapson
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Katrina Jessoe: Department of Agricultural and Resource Economics, University of California, Davis,

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

Abstract: The largest decile of commercial electricity customers comprises half of commercial sector electricity usage. We quantify a substantial split incentives problem that exists when these large firms are on electricity-included property lease contracts. Using exogenous variation in weather shocks, we show that customers on tenant-paid contracts use 6-14% less electricity in summer months. The policy implications are promising. Nationwide energy savings from aligning incentives for the largest 10% of commercial customers exceeds analogous savings from the entire residential electricity sector. It is also cost-effective: switching to tenant-paid contracts via sub-metering has a private payoff period of under one year.

Keywords: Electricity; Principal-Agent Problem; Contracts (search for similar items in EconPapers)
JEL-codes: D22 L14 Q51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta, nep-ene and nep-reg
Date: 2017-05-01
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Published: Carleton Economic Papers

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Handle: RePEc:car:carecp:17-07