We study the dynamics of residential electricity demand by exploiting a natural experiment that produced large and long-lasting price changes in over 250 Illinois communities. Using a flexible difference-in-difference matching approach, we estimate that the price elasticity of demand grows from-0.09 in the first six months to-0.27 two years later. We find similar results with a dynamic model in which usage is a function of past and future prices. Our findings highlight the importance of accounting for consumption dynamics when evaluating energy policy.
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)