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  • Nonlinear pricing and taxation complicate economic decisions bycreating multiple marginal prices for the same good. This paperprovides a framework to uncover consumers' perceived price ofnonlinear price schedules. I exploit price variation at spatialdiscontinuities in electricity service areas, where households inthe same city experience substantially different nonlinear pricing.Using household-level panel data from administrative records, I findstrong evidence that consumers respond to average price rather thanmarginal or expected marginal price. This suboptimizing behaviormakes nonlinear pricing unsuccessful in achieving its policy goal ofenergy conservation and critically changes the welfare implicationsof nonlinear pricing.

  • We develop a framework to characterize strategic behavior in sequential markets under imperfect competition and restricted entry in arbitrage. Our theory predicts that these two elements can generate a systematic price premium. We test the model predictions using microdata from the Iberian electricity market. We show that the observed price differences and firm behavior are consistent with the model. Finally, we quantify the welfare effects of arbitrage using a structural model. In the presence of market power, we show that full arbitrage is not necessarily welfare-enhancing, reducing consumer costs but increasing deadweight loss.

  • We study a problem in which policymakers need to screen self-selected individuals by unobserved heterogeneity in social welfare gains from a policy intervention. In our framework, the marginal treatment effects and marginal treatment responses arise as key statistics to characterize social welfare. We apply this framework to a randomized field experiment on electricity plan choice. Consumers were offered welfare-improving dynamic pricing with randomly assigned take-up incentives. We find that price-elastic consumers—who generate larger welfare gains—are more likely to self-select. Our counterfactual simulations quantify the optimal take-up incentives that exploit observed and unobserved heterogeneity in selection and welfare gains.

Last update from database: 12/8/23, 12:00 AM (AEDT)