Long-run price elasticities and mechanisms: Empirical evidence from residential electricity consumers (Job Market Paper)

Abstract

Long-run elasticities are difficult to empirically estimate, and credible quasi-experimental estimates of long-run elasticities are rare, especially in the energy economics literature. However, long-run elasticities are crucial for calculating welfare, forecasting demand, and evaluating policy. In this paper, I leverage a novel source of plausibly exogenous long-lasting price variation for one of the first quasi-experimental estimates of the long-run price elasticity of demand for residential electricity consumers. I find that consumers are much more responsive to prices in the long run than the short run, with a long-run elasticity estimate of -2.4, in contrast with a short-run elasticity estimate of -0.36. Furthermore, I explore some of the mechanisms driving this price response, and find that residential adoption of rooftop solar alone can explain 26 percent of the observed response in consumption. My findings highlight the impact of price-based policies, and suggest that these types of policies may be more effective than previously thought in inducing energy transitions to cleaner technologies.

Publication
Long-run price elasticities and mechanisms: Empirical evidence from residential electricity consumers (Job Market Paper)
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