Natural Gas Price Elasticities and Optimal Cost Recovery Under Consumer Heterogeneity: Evidence from 300 million natural gas bills / Maximilian Auffhammer, Edward Rubin.

Format:

Book

Author/Creator:

Auffhammer, Maximilian.

Contributor:

National Bureau of Economic Research.

Rubin, Edward.

Series:

Working Paper Series (National Bureau of Economic Research) no. w24295.

NBER working paper series no. w24295

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Natural Gas Price Elasticities and Optimal Cost Recovery Under Consumer Heterogeneity

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

Half of American households heat their homes with natural gas furnaces and 43% use it to heat their water. Hence, understanding residential natural gas consumption behavior has become a first-order problem. In this paper, we provide the first ever causally identified, microdata-based estimates of residential natural gas demand elasticities using a panel of approximately 300 million bills in California. To overcome multiple sources of endogeneity, we employ a two-pronged empirical strategy: (1) we exploit a discontinuity along the border between two major natural-gas utilities in conjunction with (2) an instrumental variables strategy based upon the differences in the utilities' rules/behaviors for internalizing changes in the upstream natural gas spot market. We estimate that the elasticity of demand for residential natural gas is between -0.23 and -0.17. We also provide evidence of significant seasonal and income-based heterogeneity in this elasticity. This heterogeneity suggests unexplored policy avenues that may be simultaneously efficiency-enhancing-in the absence of first best pricing--and pro-poor.

Notes:

Print version record

February 2018.