A new look at residential electricity demand using household expenditure data

- Develop a new strategy based on GMM to estimate household electricity demand
- Utilizes publicly available data without imputation of price and quantity
- The modeling approach is consistent with consumers responding to average price
- Analysis yields price elasticity estimates at the upper end of previous estimates
- Contrasts are made with previous literature

Many electricity demand estimates have been obtained based on the assumption that consumers optimize with respect to known marginal prices, but increasing empirical evidence suggests that consumers are more likely to respond to average prices. Under this assumption, this paper develops a new strategy based on Generalized Method of Moments to estimate household electricity demand. Our demand estimation approach uses publicly available expenditure data and utility-level consumption data from several major U.S. cities, complementing studies that use individual billing data which are richer yet often proprietary. We estimate the price elasticity near − 0.50, which is at the upper end (in magnitude) among the estimates from previous studies. This could have important implications for policy analysis such as those on climate policies that may affect electricity prices.