Towards understanding the role of price in residential electricity choices: Evidence from a natural experiment

We examine a choice setting in which residential electricity consumers may respond to non-financial incentives in addition to prices. Using data from a natural field experiment that exposed some households to a change in their electricity rates, we find that households reduced electricity usage in response to a contemporaneous decrease in electricity prices. This provides clear evidence that other factors – potentially encompassing non-monetary and dynamic considerations – can influence consumer choice, and even dominate the static price response in some cases. A comprehensive understanding of household behavior in energy markets is essential for the effective implementation of market-based energy and environmental policies. The documentation of our result and others like it is a necessary step in achieving such an understanding.