title: Consequences of a price incentive on free riding and electric energy consumption.
abstract: This article shows that a simple monetary incentive can dramatically reduce electric energy consumption (EEC) in the residential sector and simultaneously achieve a more desirable allocation of EEC costs. The analyses are based on data from a policy experiment conducted in 2011 and 2012 by a private housing company in about 1,800 apartments. Roughly 800 of the tenants (treatment group) were subject to a change from having unlimited EEC included in their rent to having to pay the market price for their own EEC. This change was achieved by installing EEC meters in each apartment. Tenants in the other 1,000 apartments (control group) experienced no policy change and were subject to apartment-level billing and metering during the entire study period. Using a quasiexperimental research design and daily data on EEC from 2007 to 2015, we estimate that apartment-level billing and metering permanently reduce EEC by about 25%. Moreover, we show that households reduce EEC immediately after being informed that they will be billed for EEC, the reduction is larger when the production cost is higher, and the reduction in EEC comes almost exclusively from households with very high EEC before the policy change. Finally, we show that apartment-level billing and metering are cost-effective, with a cost per reduced kilowatt hour of US$0.01, and for each invested dollar, the social value of reductions in air pollution, including CO2emissions, is $2.
authors.affiliation: Department of Economics, Uppsala University, SE-751 20 Uppsala, Sweden; mikael.elinder@nek.uu.se.|Uppsala Center for Fiscal Studies, SE-751 20 Uppsala, Sweden.|The Research Institute of Industrial Economics, SE-102 15 Stockholm, Sweden.
authors.forename: Mikael
authors.initials: M
authors.lastname: Elinder
authors.affiliation: Department of Economics, Uppsala University, SE-751 20 Uppsala, Sweden.|Uppsala Center for Fiscal Studies, SE-751 20 Uppsala, Sweden.
authors.forename: Sebastian
authors.initials: S
authors.lastname: Escobar
authors.affiliation: Department of Economics, Uppsala University, SE-751 20 Uppsala, Sweden.
authors.forename: Ingel
authors.initials: I
authors.lastname: Petré
keywords: energy conservation; environment; quasiexperiment; smart meters; sub metering