2017

Consequences of a Price Incentive on Free Riding and Electric Energy Consumption

Reprint No. 2017:72

Author(s): Mikael Elinder, Sebastian Escobar and Ingel PetréYear: 2017 Title: PNAS Volume (No.): 114 (12) Pages: 3091–3096

Consequences of a Price Incentive on Free Riding and Electric Energy Consumption Mikael Elinder, Sebastian Escobar and Ingel Petré


This article shows that a simple monetary incentive can dramatically reduce electric energy consumption (EEC) in the residential sector and simultaneously achieve a more desirable allocation of EEC costs. The analyses are based on data from a policy experiment conducted in 2011 and 2012 by a private housing company in about 1,800 apartments. Roughly 800 of the tenants (treatment group) were subject to a change from having unlimited EEC included in their rent to having to pay the market price for their own EEC. This change was achieved by installing EEC meters in each apartment. Tenants in the other 1,000 apartments (control group) experienced no policy change and were subject to apartment-level billing and metering during the entire study period. Using a quasiexperimental research design and daily data on EEC from 2007 to 2015, we estimate that apartment-level billing and metering permanently reduce EEC by about 25%. Moreover, we show that households reduce EEC immediately after being informed that they will be billed for EEC, the reduction is larger when the production cost is higher, and the reduction in EEC comes almost exclusively from households with very high EEC before the policy change. Finally, we show that apartment-level billing and metering are cost-effective, with a cost per reduced kilowatt hour of US$0.01, and for each invested dollar, the social value of reductions in air pollution, including CO2 emissions, is $2.


Reference:
Elinder, Mikael, Sebastian Escobar and Ingel Petré (2017), "Consequences of a Price Incentive on Free Riding and Electric Energy Consumption". PNAS 114(12), 3091–3096.

Mikael Elinder

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mikael.elinder@ifn.se

Elgar Companion to

Social Capital and Health

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Martin Ljunge, IFN, is the author of a chapter, "Trust promotes health: addressing reverse causality by studying children of immigrants", in a new book edited by Sherman Folland and Eric Nauenberg. The cutting edge of research is presented, covering the ever-expanding social capital field.

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