The Long-Run Dynamics of Electricity Demand: Evidence From Municipal Aggregation
66 Pages Posted: 20 Nov 2018
Date Written: October 26, 2018
We study the dynamics of residential electricity demand by exploiting a natural experiment that produced large and long-lasting price changes in over 250 Illinois communities. Using a flexible difference-in-differences matching approach, we estimate that the price elasticity of demand grows from -0.09 in the first six months to -0.27 two years later. We also estimate a more sophisticated model in which usage is a function of past and future prices, and we find similar elasticity patterns. Our findings highlight the importance of accounting for consumption dynamics when evaluating energy policy.
JEL Classification: Q41, Q48, D12
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