This issue of The Takeaway explores a practical strategy for transitioning consumers away from the inefficiency and overuse of fixed-rate electricity plans.
Fixed-rate electricity plans lead to less environmentally sound outcomes because they have no incentives for consumers to limit usage during peak times when electricity generation is very expensive. Dynamic rate plans offer monetary incentives to limit usage during peak times, but risk averse consumers tend not to choose them.
The Takeaway: Does Price Volatility Information Affect Consumer Choice?
Dr. Anastasia Shcherbakova, an applied economist in the Texas A&M Department of Agricultural Economics and a Research Fellow with the Mosbacher Institute, wondered if the way price volatility information is presented affects consumer choices. She and her collaborators set up a discrete choice experiment that presented participants with different combinations of electricity plans with various attributes and asked them to choose which plan they prefer. They found that for the same plan, respondents were less likely to choose it when presented with hourly price volatility information than when shown a monthly price range. It seems that highlighting the potential upside of variable rates can increase the willingness of consumers to choose variable rates and make electricity generation a little more efficient and environmentally friendly.
You can read about it in “Does Price Volatility Information Affect Consumer Choice?”
The Takeaway is a publication of the Mosbacher Institute for Trade, Economics, and Public Policy at the Bush School at Texas A&M University.