Incentives for Efficient Household Electricity and Water Consumption
Friday, Jan. 6, 2023 2:30 PM - 4:30 PM (CST)
- Chair: Frank Wolak, Stanford University
Centralized vs Decentralized Demand Response: Evidence from a Field Experiment
AbstractIn electricity markets, increased supply-side production volatility and the anticipated growth in demand due to climate change and electrification enhance the need for flexible electricity demand. Despite efforts to incentivize demand changes, residential electricity demand remains inelastic. In partnership with an electric utility, we implement a large-scale field experiment to evaluate the effectiveness of centrally-managed (utility-controlled) demand, which we suspect may overcome consumers' transaction costs in responding to incentives. We randomize households into several treatment groups that include a Central group with utility-controlled appliances, a Tech group that allows households to remotely manage devices via a mobile phone app, and a Manual group that manually adjusts consumption. Households earn rewards for reducing electricity during periodic ``peak'' events. We find that the Central group reduces demand by 27% during the 3-hour events on average, while the Tech and Manual groups only reduce demand by 4% and 6%. Our findings illustrate that a key barrier to residential demand response is transaction costs rather than technological barriers. We find that centralized control can result in significant peak demand reductions with minimal opt-out rates by households.
Causes and Consequences of Inefficient Municipal Water Pricing
AbstractMunicipal water utilities often design rate structures to recover costs, encourage conservation, and reduce burdens on low-income customers. Implementing these goals jointly may pull water prices away from economically efficient two-part tariffs. In this paper, I characterize the extent to which utilities deviate from efficient pricing using a decade of annual rates and municipal finance data for more than 600 water and wastewater utilities in the southeastern US. I show that, on average, utilities price water substantially below average and marginal cost, which is exacerbated by increasing-block rate structures where inframarginal prices are discounted more severely. These suppressed volumetric rates lead to budget shortfalls, are larger in poorer communities, and offset by historical water scarcity, suggesting a direct equity–efficiency–environmental tradeoff. Estimated revenue elasticities imply that utilities can increase both revenue and conservation, thus reducing deadweight loss from overconsumption, by implementing constant marginal cost pricing.
Information, Incentives, and Goal-Setting: A Field Experiment in Water Usage
AbstractWe report results from a 12-week field experiment in residential water usage. We examine how personalized feedback from smart meters and weekly goals-based incentives from a digital platform affect water-conserving behavior. Our results reveal large, 8\% reductions (ITT) in daily water usage in the first month of the trial. Daily conservation effects wane over time but persist within the 3pm-6pm interval throughout the trial. Treatment households accelerating reductions in seasonal outdoor water usage explain the substantial short-run daily conservation effects. We further establish that weekly water usage goals drive within-week water usage dynamics and explore a last-mile problem in implementing monetary incentives.
University of Southern California
University of Texas-Austin
- L5 - Regulation and Industrial Policy
- Q4 - Energy