Accounting for Elimination-By-Aspects Strategies and Demand Management in Electricity Contract Choice

23 Pages Posted: 16 Nov 2017

See all articles by Aemiro Melkamu Daniel

Aemiro Melkamu Daniel

Umeå University - Centre for Environmental and Resource Economics

Lars Persson

Umeå University - Centre for Environmental and Resource Economics

Erlend Dancke Sandorf

Swedish University of Agricultural Sciences (SLU) - Center for Environmental and Resource Economics (CERE)

Date Written: November 7, 2017

Abstract

We report on a discrete choice experiment aimed at eliciting Swedish households’ willingness-to-accept a compensation for restrictions on household electricity and heating use during peak hours. When analyzing data from discrete choice experiments, we typically assume that people make rational utility maximizing decisions, i.e., that they consider all of the attribute information and compare all alternatives. However, mounting evidence shows that people use a wide range of simplifying strategies that are inconsistent with utility maximization. We use a flexible model capturing a two-stage decision process. In the first stage, respondents are allowed to eliminate from their choice set alternatives that contain an unacceptable level, i.e., restrictions on the use of heating and electricity. In the second stage, respondents choose in a compensatory manner between the remaining alternatives. Our results show that about half of our respondents choose according to an elimination-by-aspects strategy, and that, on average, they are unwilling to accept any restrictions on heating in the evening or electricity use, irrespective of time-of-day. Furthermore, we find that considering elimination-by-aspects behavior leads to a downward shift in elicited willingness-to-accept. We discuss implications for policy.

Keywords: Choice Experiment, Electricity Contract, Willingness-To-Accept, Household Electricity, Elimination-By-Aspects, Two-Stage Decision

JEL Classification: C25, Q41, Q51, R21

Suggested Citation

Daniel, Aemiro Melkamu and Persson, Lars and Sandorf, Erlend Dancke, Accounting for Elimination-By-Aspects Strategies and Demand Management in Electricity Contract Choice (November 7, 2017). CERE Working Paper, 2017:7, Available at SSRN: https://ssrn.com/abstract=3070268 or http://dx.doi.org/10.2139/ssrn.3070268

Aemiro Melkamu Daniel (Contact Author)

Umeå University - Centre for Environmental and Resource Economics ( email )

Umeå, S-901 87
Sweden

Lars Persson

Umeå University - Centre for Environmental and Resource Economics ( email )

Umeå, S-901 87
Sweden

Erlend Dancke Sandorf

Swedish University of Agricultural Sciences (SLU) - Center for Environmental and Resource Economics (CERE)

Department of Economics
Umeå, 901 87
Sweden

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
31
Abstract Views
451
PlumX Metrics