Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 940: Heterogeneity in price responsiveness of electricity: Contract choice and the role of media coverage

Mattias Vesterberg ()
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Mattias Vesterberg: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden

Abstract: In this paper, I estimate the price elasticity of electricity as a function of contract choice. Further, I explore how the media coverage of electricity prices affects electricity demand, both by augmenting price responsiveness and as a direct effect of media coverage on electricity demand, independent of prices. The parameters in the model are estimated using a unique and detailed Swedish panel data on monthly household-level electricity consumption. I find that price elasticities range between -0.025 and -0.07 at the mean level of media coverage, depending on contract choice, and that households with monthly variation in electricity prices respond more to prices when media coverage of electricity prices is extensive. When media coverage is high, for example 840 news articles per month (which corresponds to the mean plus two standard deviations), the price elasticity is -0.12, or 1.7 times the elasticity at the mean media coverage. Similarly, media coverage is also found to have a direct effect on electricity demand.

Keywords: Electricity tariff; Electricity demand; Price elasticity; Information; Media

JEL-codes: D12; D83; Q41

24 pages, January 25, 2017

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