Using Dynamic Electricity Pricing to Address Energy Crises Evidence from Randomized Field Experiments

We use eld experiments to examine how consumers respond to two dierent types of policy intervention: social pressure and private incentives. Consumers in our experiment receive social pressure that requests them to reduce electricity usage in hours when the marginal cost of electricity is high. This social pressure does not involve any economic incentive. In addition to the social pressure, our second treatment group receives dynamic electricity pricing, a strong private incentive to save electricity: the hourly marginal price of electricity changes between 15 to 150 yen (15 to 150 cents) per kWh. We nd that the social pressure itself reduces electricity consumption by 3% to 4%. However, the reduction is much larger when consumers are exposed to the dynamic pricing, in which the highest marginal price results in a reduction up to 15%. Third, consumers in our experiment, who are well-informed about their hourly electricity price, actually respond to the change in hourly marginal price: higher hourly marginal prices produce larger reductions in consumption. Fourth, we investigate the heterogeneity in response to the social and private incentives. Compared to low-income consumers, high-income consumers respond to the social pressure more. Conversely, the response to the dynamic pricing is less for high-income consumers. Finally, we nd that the response to the dynamic pricing is also larger for high-electricity users.