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Hysteresis and the Welfare Effect of Corrective Policies: Theory and Evidence from an Energy Saving Program

Francisco J M Costa and Francois Gerard
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Francisco J M Costa: FGV EPGE Brazilian School of Economics and Finance

No r4wep, SocArXiv from Center for Open Science

Abstract: This paper provides stark evidence of hysteresis -- the failure of an effect to reverse itself as its underlying cause is reversed -- in energy demand. We estimate that half of the 23%-reduction in residential electricity use caused by a 9-month-long policy that was imposed on millions of Brazilians has persisted for at least 12 years. We examine the implications of our finding by extending the traditional welfare analysis of corrective policies to allow for hysteresis. Our estimate highlights that failing to take hysteresis into account could severely bias the welfare evaluation of policies aimed at reducing (long-run) energy demand.

Date: 2019-08-23
New Economics Papers: this item is included in nep-ene and nep-reg
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https://osf.io/download/5d6f96796f41fc001c33adf3/

Related works:
Working Paper: Hysteresis and the Welfare Effect of Corrective Policies: Theory and Evidence from an Energy-Saving Program (2018) Downloads
Working Paper: Hysteresis and the Welfare Effect of Corrective Policies: Theory and Evidence from an Energy-Saving Program (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:osf:socarx:r4wep

DOI: 10.31219/osf.io/r4wep

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