Scandinavian Working Papers in Economics

CERE Working Papers,
CERE - the Center for Environmental and Resource Economics

No 2017:7: Accounting for Elimination-by-Aspects Strategies and Demand Management in Electricity Contract Choice

Aemiro Melkamu Daniel (), Lars Persson () and Erlend Dancke Sandorf ()
Additional contact information
Aemiro Melkamu Daniel: CERE and the Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S-901 87, Umeå, Sweden
Lars Persson: CERE and the Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S-901 87, Umeå, Sweden
Erlend Dancke Sandorf: CERE and the Department of Forest Economics, SLU, Postal: Department of Economics, Umeå University, S-901 87, Umeå, Sweden

Abstract: We report on a discrete choice experiment aimed at eliciting Swedish households' willingness-to-accept a compensation for restrictions on household electricity and heating use during peak hours. When analyzing data from discrete choice experiments, we typically assume that people make rational utility maximizing decisions, i.e., that they consider all of the attribute information and compare all alternatives. However, mounting evidence shows that people use a wide range of simplifying strategies that are inconsistent with utility maximization. We use a flexible model capturing a two-stage decision process. In the fi rst stage, respondents are allowed to eliminate from their choice set alternatives that contain an unacceptable level, i.e., restrictions on the use of heating and electricity. In the second stage, respondents choose in a compensatory manner between the remaining alternatives. Our results show that about half of our respondents choose according to an elimination-by-aspects strategy, and that, on average, they are unwilling to accept any restrictions on heating in the evening or electricity use, irrespective of time-of-day. Furthermore, we nd that considering elimination-by-aspects behavior leads to a downward shift in elicited willingness-to-accept. We discuss implications for policy.

Keywords: Choice experiment; Electricity contract; Willingness-to-accept; Household electricity; Elimination-by-aspects; Two-stage decision

JEL-codes: C25; Q41; Q51; R21

23 pages, November 7, 2017

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