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Simulation of the Demand for Electricity Under Alternate Rate Structures

Dubin, Jeffrey A. (1983) Simulation of the Demand for Electricity Under Alternate Rate Structures. Social Science Working Paper, 470. California Institute of Technology , Pasadena, CA. (Unpublished)

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This paper reviews the theory of price specification and considers the comparative static analysis of demand subject to alternative rate schedules. An econometric analysis of the 1975 Washington Center for Metropolitan Studies survey resolves four empirical issues related to the estimation of the demand for electricity: (1) measured average price and measured marginal price are statistically endogenous so that least squares technique s are not appropriate for the determination of price and income elasticities, (2) while the rate structure premium (RSP ) has established theoretical merit its statistical contribution is negligible, (3) consumer behavior in the demand for electricity follows the marginal price rather than the average price specification, and (4) estimates of price responsiveness are not statistically different using the tail-end price rather than the true marginal price. We demonstrate a practical way of making probabilistic comparisons between alternative rate schedules which is applied in several examples to illustrate the prevalence of block switching. The methodology is easily applied to inverted tariff schedules even when structural parameters have been determined from a cross-section of individuals who face declining block rates.

Item Type:Report or Paper (Working Paper)
Alternate Title:Rate Structure and Price Specification in the Demand for Electricity
Additional Information:The author wishes to thank Ernst Berndt, Daniel McFadden, Franklin Fisher, and Jerry Hausman for helpful comments. This paper revises and extends a chapter from the author's M.I.T. Ph.D thesis. "Economic Theory and Estimation of the Demand for Consumer Durable Goods and Their Utilization: Appliance Choice and the Demand for Electricity,” Massachusetts Institute of Technology. An earlier version of this paper circulated under the title, "Rate Structure and Price Specification in the Demand for Electricity.”
Group:Social Science Working Papers
Series Name:Social Science Working Paper
Issue or Number:470
Record Number:CaltechAUTHORS:20170922-155031571
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:81777
Deposited By: Jacquelyn Bussone
Deposited On:25 Sep 2017 22:46
Last Modified:03 Oct 2019 18:46

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