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-difference 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 find similar results with a dynamic model in which usage is a function of past and future prices. Our findings highlight the importance of accounting for consumption dynamics when evaluating energy policy.
Deryugina, Tatyana, Alexander MacKay, and Julian Reif.
"The Long-Run Dynamics of Electricity Demand: Evidence from Municipal Aggregation."
American Economic Journal: Applied Economics,
Industry Studies: Utilities and Transportation: Government Policy
Energy: Demand and Supply; Prices
Energy: Government Policy