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American Economic Journal: Economic Policy: Vol. 4 No. 3 (August 2012)

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The Redistributional Impact of Nonlinear Electricity Pricing

Article Citation

Borenstein, Severin. 2012. "The Redistributional Impact of Nonlinear Electricity Pricing." American Economic Journal: Economic Policy, 4(3): 56-90.

DOI: 10.1257/pol.4.3.56

Abstract

Electricity regulators often mandate increasing-block pricing (IBP)—i.e., marginal price increases with the customer's average daily usage—to protect low-income households from rising costs. IBP has no cost basis, raising a classic conflict between efficiency and distributional goals. Combining household-level utility billing data with census data on income, I find that IBP in California results in modest wealth redistribution, but creates substantial deadweight loss relative to the transfers. I also show that a common approach to studying income distribution effects by using median household income within census block groups may be misleading. (JEL D31, L11, L51, L94, L98, Q41, Q48)

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Authors

Borenstein, Severin (U CA, Berkeley)

JEL Classifications

D31: Personal Income, Wealth, and Their Distributions
L11: Production, Pricing, and Market Structure; Size Distribution of Firms
L51: Economics of Regulation
L94: Electric Utilities
L98: Industry Studies: Utilities and Transportation: Government Policy
Q41: Energy: Demand and Supply
Q48: Energy: Government Policy

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