Indiana University SPEA Edward J. Bloustein School of Planning and Public Policy University of Pennsylvania AIR American University

Panel Paper: Enduring Effects of Changes in Billing Frequency: Quasi-Experimental Evidence from Urban Water Demand

Friday, November 13, 2015 : 9:10 AM
Board Room (Hyatt Regency Miami)

*Names in bold indicate Presenter

Casey J. Wichman, Resources for the Future
In highly regulated markets for electricity and water demand, where prices are politically difficult to change, finding cost-effective conservation strategies is of topical policy interest. Recently, informative interventions have gained popularity as a tool to reduce consumption of economic goods that impose external costs on society. The majority of extant studies show that various forms of information provision can be utilized as a tool of conservation. These instruments, however, have varying degrees of persistence.

In this paper, I build on previous research by examining consumption in response to changes in the frequency of bills received by residential water customers for a large water utility in the Southeastern US. In this setting, the customer’s bill serves as an information treatment. By exploiting an exogenous increase in from bi-monthly to monthly bills, I estimate a causal five percent increase in consumption in response to more frequent information. This surprising result is reconciled in a model of price misperception, in which more frequent information enables consumers to optimize with a greater degree of precision.

A central focus of this research is to determine whether consumers change their behavior permanently or simply revert back to original misoptimizing behavior after they learn that they are billed at a different frequency. The dynamic response of consumers to changes in the frequency of information treatments along different household and socioeconomic characteristics is considered. Preliminary results suggest that the permanent change to more frequent billing results in a permanent behavioral response that is significantly more pronounced in summer months.

This research contributes to the general literature on consumer behavior under imperfect behavior, with implications for the role of informative interventions as policy instruments. More specifically, I highlight the importance of understanding the mechanism through which consumers assimilate and use information to make decisions in intermittent choice settings. Lastly, this research provides a cautionary tale for electric and water utility managers seeking to use more frequent information as a policy tool.

Full Paper: