Does Energy Consumption Respond to Price Shocks? Evidence from a Regression-Discontinuity Design

Bastos, Paulo; Castro, Lucio; Cristia, Julian; Scartascini, Carlos

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Does Energy Consumption Respond to Price Shocks? Evidence from a Regression-Discontinuity Design

World Bank Policy Research Working Paper No. 6785

39 Pages Posted: 20 Apr 2016

See all articles by Paulo Bastos

Paulo Bastos

World Bank; Technical University of Lisbon (UTL) - Research Unit on Complexity and Economics (UECE); ISEG Lisbon School of Economics and Management,Universidade de Lisboa

Lucio Castro

CIPPEC (Center for the Implementation of Public Policies for Equity and Growth); University of Sussex

Carlos Scartascini

Research Department - Inter-American Development Bank (IDB)

There are 3 versions of this paper

Date Written: February 1, 2014

Abstract

This paper exploits unique features of a recently introduced tariff schedule for natural gas in Buenos Aires to estimate the short-run impact of price shocks on residential energy utilization. The schedule induces a nonlinear and non-monotonic relationship between households' accumulated consumption and unit prices, thus generating exogenous price variation, which is exploited in a regression-discontinuity design. The results reveal that a price increase causes a prompt and significant decline in gas consumption. They also indicate that consumers respond more to recent past bills than to expected prices, which argues against the assumption that consumers have perfect awareness of complex price schedules.

Keywords: Consumption, Climate Change Economics, Economic Theory & Research, Energy Production and Transportation, Markets and Market Access

Suggested Citation: Suggested Citation

Bastos, Paulo and Castro, Lucio and Cristia, Julian and Scartascini, Carlos G., Does Energy Consumption Respond to Price Shocks? Evidence from a Regression-Discontinuity Design (February 1, 2014). World Bank Policy Research Working Paper No. 6785, Available at SSRN: https://ssrn.com/abstract=2404635