Households significantly reduce electricity use when prices rise

October 29, 2008

Philadelphia, PA - October 29, 2008 - A new study in the RAND Journal of Economics examined how quickly households change their electricity use when prices rise and fall rapidly. Results show that when electricity prices increase, the average household rapidly reduces its electricity use. However, when electricity prices then decrease, household energy use returns to previous levels.

Matthew White and Peter C. Reiss examined how thousands of households in California changed their energy use before and after California's electricity crisis. These households experienced unprecedented price increases in 2000. As opposed to self-reports, researchers used metered energy consumption for 70,000 households.

When electricity prices doubled, the average household reduced its electricity use by about 13 percent within 60 days. More than one third of all households reduced their monthly electricity use by over 20 percent.

When electricity prices later decreased, energy use rebounded to nearly previous levels within about a month.

Households also conserve energy in response to public informational campaigns about how to lower one's electric bill. The researchers found that publicly-funded programs delivered changes in home energy use that could add up to a big difference in total electricity use across a city or state.

Overall, these informational programs were remarkably effective, reducing average household energy use by about 7 percent.

"We may not like paying higher prices for electricity when there isn't enough to go around, but it turns out people find ways to conserve a lot of it, and quickly, in order to lower their bill," the authors conclude. "It is clear that the typical household is willing and able to reduce its energy consumption by meaningful amounts when prices change, and given useful, specific information on how to do so."
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This study is published in the Autumn 2008 issue of the RAND Journal of Economics. Media wishing to receive a PDF of this article may contact journalnews@bos.blackwellpublishing.net.

Matthew W. White is affiliated with the University of Pennsylvania and can be reached for questions at matthew.white@wharton.upenn.edu.

The RAND Journal of Economics publishes theoretical and empirical research on industrial organization and closely related topics, including contracts, organizations, law and economics, and regulation.

Wiley-Blackwell was formed in February 2007 as a result of the acquisition of Blackwell Publishing Ltd. by John Wiley & Sons, Inc., and its merger with Wiley's Scientific, Technical, and Medical business. Together, the companies have created a global publishing business with deep strength in every major academic and professional field. Wiley-Blackwell publishes approximately 1,400 scholarly peer-reviewed journals and an extensive collection of books with global appeal. For more information on Wiley-Blackwell, please visit www.wiley-blackwell.com or http://interscience.wiley.com.

Wiley

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