The Redistributional Impact of Nonlinear Electricity Pricing
- (pp. 56-90)
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)Citation
Borenstein, Severin. 2012. "The Redistributional Impact of Nonlinear Electricity Pricing." American Economic Journal: Economic Policy, 4 (3): 56-90. DOI: 10.1257/pol.4.3.56Additional Materials
JEL Classification
- 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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