Residential Demand for Electricity under Inverted Block Rates: Evidence from a Controlled Experiment.

Block-rate structures are used extensively in public-utility pricing, including residential electricity. Estimating price elasticities in this context is complicated by the resulting nonlinearity of the consumer's budget constraint. This article estimates the demand for electricity under inverted block rates using data from a residential rate experiment. The study provides an opportunity to obtain short-run price elasticities in an experimental setting and to compare alternative estimators developed for nonlinear budget constraints. Elasticities of demand with respect to individual components of the block rate are developed using a modification of the structural maximum likelihood estimator.