Koichiro Ito

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.

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Areas of Focus: Energy Markets
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Energy Markets
Well-functioning markets are essential for providing access to reliable, affordable energy. EPIC research is uncovering the policies, prices and information needed to help energy markets work efficiently.
Electric Power
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Electric Power
As the electric power system faces new pressures and opportunities, EPIC research is working to identify the mix of policies needed to accelerate the global transition to clean, reliable, affordable...
Energy Efficiency
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Energy Efficiency
Improving energy efficiency is lauded as a promising way reduce emissions and lower energy costs. Yet, a robust body of research demonstrates that not all efficiency investments deliver. EPIC faculty...