Katrina Jessoe, David Rapson, and Jeremy B. Smith, "Are Residential Consumers Utility Maximizers? Evidence from a Natural Experiment" (October 2013) (Revised version in the Journal of Economic Behavior and Organization, 107: 191 - 208. November 2014.) Full Paper
We examine a choice setting in which residential electricity consumers may respond to incentives other than contemporaneous prices. We test predictions from the standard model of utility maximization using data from a natural field experiment that exposed some households to a change in their electricity rates. Households reduce electricity usage in response to a decrease in electricity prices, suggesting that factors aside from price influence customer choice. An understanding of household behavior in energy markets is essential for the effective implementation of climate change mitigation policy. Documenting this and similar results is a necessary step in achieving such an understanding.