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The Long-Run Dynamics of Electricity Demand: Evidence from Municipal Aggregation
Tatyana Deryugina, Alexander MacKay, and Julian Reif
American Economic Journal: Applied Economics. Jan 2020, Vol. 12, No. 1: Pages 86-114

The Long-Run Dynamics of Electricity Demand: Evidence from Municipal Aggregation†

Tatyana Deryugina1, Alexander MacKay2 and Julian Reif3

1Gies College of Business, University of Illinois, 515 E Gregory Drive, Champaign, IL 61820, and NBER (email: )

2Harvard Business School, Harvard University, 15 Harvard Way, Boston, MA 02139 (email: )

3Gies College of Business, University of Illinois, 515 E Gregory Drive, Champaign, IL 61820, and NBER (email: )

Abstract

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. (JEL L94, L98, Q41, Q48)