Household electricity demand estimation: a regression discontinuity design approach

Estimating electricity demand elasticity in different sectors has been an essential research topic. Considering the fact that pricing electricity in various countries does not follow the same rules, many econometrics methods have been developed to estimate this crucial parameter. Electricity demand elasticity is defined as the percent change in electricity consumption in response to one percentage change in electricity price. Having a correct estimate of this parameter would help policymakers to price electricity properly in order to reach desirable goals in electricity consumption optimization and many other aspects of electricity consumption. In Iran, Tavanir which is a subsidiary of the Ministry of Energy, announces the price schedule of electricity in different months and regions. Examining the price schedules in different counties would make it clear that there are neighboring counties in which the imposed tariffs are not the same. In this research, using the fact that there are different tariffs imposed in some neighboring countries, the regression discontinuity design is exploited to identify the household electricity demand price elasticity causally. The findings of this research suggest that on average, increasing the electricity price by one percentage would lead to the decrease of electricity consumption by around 0.4 to 0.7 percent.