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The Long-Run Dynamics of Electricity Demand: Evidence from Municipal Aggregation

By: Tatyana Deryugina, Alexander MacKay and Julian Reif
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  • | Language:English
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Abstract

Economic theory suggests that demand is more elastic in the long run relative to the short run, but evidence on the empirical relevance of this phenomenon is scarce. We study the dynamics of residential electricity demand by exploiting price variation arising from a natural experiment: the introduction of an Illinois policy that enabled communities to select electricity suppliers on behalf of their residents. Using a flexible difference-in-differences matching approach, we estimate a one-year price elasticity of -0.16 and three-year elasticity of -0.27. We also present evidence that consumers increased usage ahead of these announced price changes. Finally, we project that the price elasticity converges to a value between -0.30 and -0.35 after ten years. Our findings highlight the importance of accounting for consumption dynamics when evaluating energy policy.

Keywords

Energy; Demand and Consumers; Price; Policy; Mathematical Methods

Citation

Deryugina, Tatyana, Alexander MacKay, and Julian Reif. "The Long-Run Dynamics of Electricity Demand: Evidence from Municipal Aggregation." NBER Working Paper Series, No. 23483, October 2017.
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About The Author

Alexander J. MacKay

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Related Work

    • January 2020
    • American Economic Journal: Applied Economics

    The Long-Run Dynamics of Electricity Demand: Evidence from Municipal Aggregation

    By: Tatyana Deryugina, Alexander MacKay and Julian Reif
Related Work
  • The Long-Run Dynamics of Electricity Demand: Evidence from Municipal Aggregation By: Tatyana Deryugina, Alexander MacKay and Julian Reif
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