Demand response as a common pool resource game: Nudges versus prices

Demand response as a common pool resource game: Nudges versus prices / Penelope Buckley and Daniel Llerena. Grenoble : Grenoble Applied Economic lab (GAEL), Feb. 2018, 35 p. (working paper GAEL ; 01/2018)

https://gael.univ-grenoble-alpes.fr/sites/gael/files/doc-recherche/WP/A2018/gael2018-01.pdf

The aim of demand response is to make energy consumption more exible during peak periods. Using a contextualised CPR framework, we study energy consumption choices. Subjects decide the consumption level of ve activities during 10 periods. The total consumption of these activities is the CPR contribution, and payos depend on own consumption and the amount consumed by the group. In the nudge treatment, subjects are nudged towards the socially optimal level of consumption using injunctive norms. The average consumption observed in the nudge treatment is used to calculate the price implemented in the price treatment. The objective is to quantify the nudge via an equivalent price. The main hypotheses are: consumption choices will be lower in the treatment groups compared to the control groups; when the price level is xed according to the nudge result, consumption choices in the price treatment will be equivalent to those in the nudge treatment. Across all 10 periods, consumption is signicantly lower in the nudge treatment, and higher for control groups. In the price treatment, consumption remains between the two at or slightly above the target. We conclude that the nudge treatment performs as well as an equivalent price without the implied loss of welfare. When comparing decisions under the nudge and price treatments to the control groups, the consumption decisions are signicantly dierent from period 2 for the nudge and, consistently dierent from period 7 for the price. We conclude that the nudge is understood and integrated into subjects’ decision making quicker than an equivalent price.

 


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