@techreport{NBERw18533,
 title = "Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing",
 author = "Koichiro Ito",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "18533",
 year = "2012",
 month = "November",
 URL = "http://www.nber.org/papers/w18533",
 abstract = {Nonlinear pricing and taxation complicate economic decisions by creating multiple marginal prices for the same good. This paper provides a framework to uncover consumers’ perceived price of nonlinear price schedules. I exploit price variation at spatial discontinuities in electricity service areas, where households in the same city experience substantially different nonlinear pricing. Using household-level panel data from administrative records, I find strong evidence that consumers respond to average price rather than marginal or expected marginal price. This sub-optimizing behavior makes nonlinear pricing unsuccessful in achieving its policy goal of energy conservation and critically changes the welfare implications of nonlinear pricing.},
}