Data Centers and Electricity Bills: Pecuniary Externality?

Abstract

The rapid proliferation of data centers across the United States has sparked concerns about their potential impact on electricity prices, which could consequently impose higher utility costs on residential households. This paper presents a simple framework to illustrate how increased electricity demand and resulting price hikes can lead to pecuniary externalities, ultimately reducing efficiency in the presence of market frictions. These frictions include borrowing constraints and the costs associated with relocating to different areas, which limit an ability of households to efficiently respond to changes in electricity prices. We examine potential policy interventions, considering both governmental measures and actions by utility companies and technology firms involved.

Keywords: Data Centers, Pecuniary Externalities, Financial Frictions, Moving Costs