Harvard Business School
Boston, MA 02163
NBER Working Papers and Publications
|June 2017||The Long-Run Dynamics of Electricity Demand: Evidence from Municipal Aggregation|
with Tatyana Deryugina, Julian Reif: w23483
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 importanc...