Recent investments in smart grid technology and infrastructure have the potential to usher in widespread adoption of residential time varying pricing programs. These investments notwithstanding, proactive approaches to increasing active participation in these programs will be required to fully leverage demand response potential. We implement a large-scale randomized control trial in which one group of households is given the option to opt-in to time-based pricing while another group is defaulted into the program but allowed to opt-out. We provide dramatic evidence of a default effect – a significantly higher fraction of households defaulted onto the time-based pricing plan enroll in the program, even though opting out simply involved making a phone call or clicking through to a website. A distinguishing feature of our empirical setting is that we observe follow-on behavior subsequent to the default manipulation. This, in conjunction with randomization of the default provision, allows us to separately identify the subsequent response of "complacent" households (i.e., those who only enroll in time-based pricing if assigned to the opt-out treatment). We find that the complacent households do reduce energy use during higher priced peak periods, though significantly less on average compared to customers who actively opt in. However, with compliers comprising approximately 75 percent of the population, we observe significantly larger average demand reductions among consumers assigned to the opt-out group. We examine the extent to which the behavioral responses we observe lend support to alternative explanations for default effects including switching costs, inattention, and explanations that assume preferences are constructed versus pre-determined and stable across choice contexts.
This work is joint with Peter Cappers, Anna Spurlock and Annika Todd (LBNL) and Catherine Wolfram, Patrick Baylis (UC Berkeley).
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Meredith Fowlie is the Class of 1935 Endowed Chair in Energy and Associate Professor in the Department of Agricultural and Resource Economics at UC Berkeley. Professor Fowlie's work spans environmental economics, energy markets and regulation. She has worked extensively on the design and implementation of market-based environmental policies with an emphasis on the electricity sector. Her current research projects include the economics of renewable energy, the economics of energy efficiency, energy consumption patterns in the developing world, and climate change.