Utilities Included: Split Incentives in Commercial Electricity Contracts

52 Pages Posted: 25 Jul 2019

See all articles by Katrina Jessoe

Katrina Jessoe

University of California, Davis - Department of Agricultural and Resource Economics

Maya Papineau

Carleton University

David Rapson

University of California, Davis

Date Written: 2019

Abstract

This paper quantifies a tenant-side "split incentives" problem that exists when the largest commercial sector customers are on electricity-included property lease contracts causing them to face a marginal electricity price of zero. We use exogenous variation in weather shocks to show that the largest firms on tenant-paid contracts use up to 14 percent less electricity in response to summer temperature fluctuations. The result is retrieved under weaker identifying assumptions than previous split incentives papers, and is robust when exposed to several opportunities to fail. The electricity reduction in response to temperature increases is likely to be a lower bound when generalized nationwide and suggests that policymakers should consider a sub-metering policy to expose the largest commercial tenants to the prevailing retail electricity price.

Keywords: electricity, principal-agent problem, split incentive, contracts

JEL Classification: D220, L140, Q510

Suggested Citation

Jessoe, Katrina and Papineau, Maya and Rapson, David, Utilities Included: Split Incentives in Commercial Electricity Contracts (2019). CESifo Working Paper No. 7734. Available at SSRN: https://ssrn.com/abstract=3422629

Katrina Jessoe (Contact Author)

University of California, Davis - Department of Agricultural and Resource Economics ( email )

United States

HOME PAGE: http://kkjessoe.ucdavis.edu/

Maya Papineau

Carleton University ( email )

1125 colonel By Drive
Ottawa, Ontario K1S 5B6
Canada

David Rapson

University of California, Davis ( email )

One Shields Avenue
Apt 153
Davis, CA 95616
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
7
Abstract Views
98
PlumX Metrics