An empirical model of the decision to switch between electricity price contracts
Gauthier Lanot () and
Mattias Vesterberg ()
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Mattias Vesterberg: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden, http://www.econ.umu.se
No 951, Umeå Economic Studies from Umeå University, Department of Economics
We present a novel model for a time series of individual binary decisions which depends on the history of prices. The model is based on the Bayesian learning procedure which is at the core of sequential decision making. We show that the model capture dependence on past events and past priors in a straightforward fashion, the model capture some dependence on initial condition, here in the form of the prior at the start of the decision period, and that estimation through maximum likelihood is straightforward. We estimate the parameters of the model on a sample of Swedish households who have to decide over time between competing electricity contracts. The estimated parameters suggest that households respond to prices by switching between contracts, and that the response can be rather substantial for alternative price processes
Keywords: Price; Contract Choice; Bayesian Learning; Time Series; Binary Decision; Survival analysis (search for similar items in EconPapers)
JEL-codes: C11 C41 D12 Q41 (search for similar items in EconPapers)
Pages: 36 pages
New Economics Papers: this item is included in nep-ene and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:umnees:0951
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