Declining-block rates for electricity may cause bias in empirical investigations of demand because the marginal price per unit of electricity is not constant. This study was able to measure the marginal price faced by households, control for eight major appliances, and take account of weather variations by adopting a disaggregated approach to estimating demand equations. It is based on micro-level data for 3825 geographic areas in Los Angeles County. Own price elasticities of demand range from -.35 in two-year pooled samples of cross-sections to -.70 in cross sections for a single billing period. Income elasticities of demand are found to be approximately .40. Natural gas is found to have a cross-price elasticity of .75 to .90. In the long run, changes in major variables will alter the stock of appliances as well as utilization patterns and result in larger elasticities than estimated by this study. These improved empirical estimates permit richer and more accurate policy analysis of rate changes.
This report is part of the RAND Corporation paper series. The paper was a product of the RAND Corporation from 1948 to 2003 that captured speeches, memorials, and derivative research, usually prepared on authors' own time and meant to be the scholarly or scientific contribution of individual authors to their professional fields. Papers were less formal than reports and did not require rigorous peer review.
Permission is given to duplicate this electronic document for personal use only, as long as it is unaltered and complete. Copies may not be duplicated for commercial purposes. Unauthorized posting of RAND PDFs to a non-RAND Web site is prohibited. RAND PDFs are protected under copyright law. For information on reprint and linking permissions, please visit the RAND Permissions page.
The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.