The Influence of Dynamic Pricing on Consumers’ Electricity Saving Behaviours1

Energy companies and policy makers often utilize pricing mechanism to promote energy conservation besides informational provision. Such dynamic pricing includes not only the high/low price conditional on the consumption time, but the rebates which reward the consumers afterwards based on the total consumption. Even though rebates can motivate consumers to save more, such saving could provide consumers excuse indulging themselves into latter consumption spike. We explore the potential double-edged effects of the rebates (when coupled with dynamic pricing). We find peak-time high rebate is most effective in reducing the peak load consumption. Moreover, we identify the so-called “licensing effect” where the rebates could back fire in the future. We further illustrate that without considering these behaviours responses, the rebates (couple with dynamic pricing) designed to be more effective could undermine the good intention of the energy companies and the social planner in the long-run. Key words: Pricing, Rebates, Licensing effect, Energy conservation 1 Authors are listed alphabetically. Corresponding Author: [email protected]. Address: Department of Agricultural and Resource Economics, University of Connecticut
1376 Storrs Road, Storrs, CT, 06269, USA.