Using Information to Improve the Effectiveness of Nonlinear Pricing: Evidence from a Field Experiment

Presented by Matt Kahn, Institute of the Environment and Sustainability, Departments of Economics and Public Policy & Anderson School of Management

Monday, June 03, 2013
12:00 PM - 1:00 PM
La Kretz Hall, Suite 300, Large conference room

Abstract

This paper reports on the results of two field experiments that examine the impact of providing current information on a household’s electricity consuming actions on how that household responds to a nonlinear retail price schedule for electricity.  Across the two utilities, over 2,000 households participated in a customized on-line interactive educational program that taught them how their monthly electricity bill was determined from nonlinear retail pricing scheme they face.  Each household was also told where their typical consumption monthly places it on this nonlinear pricing schedule.  Households were also shown how changes in their major electricity-consuming activities would affect their monthly bill under the nonlinear pricing scheme.  Using data from before and after this intervention for households that took the educational program (our treatment) and a randomly selected set of control households, we estimate the overall treatment effect associated with our educational program as well as a treatment effect for households on each specific pricing tier on the nonlinear price schedule during the pre-intervention period.  For both utilities, we find that the overall impact of our treatment is a reduction in the household’s daily average consumption.  In addition, our price tier-specific treatment effect results are that households that learn they face a high marginal price for consuming electricity reduce their electricity consumption and households that learn they face a low marginal price increase their electricity consumption.  These results emphasize that the need to provide timely and actionable information to households in order to maximize the effectiveness of nonlinear retail pricing schemes.