If you were a treated household and got a €500 bill, what would you do?
(a) Reduce electricity use—the standard demand response
(b) Earn more—through benefits, labor markets
(c) Default on your bill!
(d) Cut other spending or use savings—we can construct a residual term /4
(a) Reduce electricity use—the standard demand response
(b) Earn more—through benefits, labor markets
(c) Default on your bill!
(d) Cut other spending or use savings—we can construct a residual term /4
Comments
- Cutting electricity use by 18%
- Increasing labor earnings by 1%
- Facing a 0.4 pp higher default risk
- Reducing other consumption by 5% /5
They started cutting electricity use early—likely via energy-saving investment. When contracts ended abruptly due to retailer bankruptcy, we see no such effect /6
- Low-income: low demand elasticity, little earnings adjustment, big drop in other spending and higher default risk
- High-income: able to cut electricity use more, small drop in other spending, no rise in defaults /7
Each bar height is the static effect—how much the bill increases for each income group. The colors reflect all the response channels. /8
As a result they (iv) have higher default risk and (v) must reduce residual consumption further /9
More in the paper. We're happy to hear your thoughts and comments!
The CEPR working paper is found here: https://cepr.org/publications/dp19972
Ungated version is here:
https://drive.google.com/file/d/1ZBJokwrA-nvaMRQH47WojYDoGjKeLmHr/view