peer comparison

Do Electricity Consumers Respond to Prices or Peers? Evidence from a Novel Electricity Billing Tournament

We examine an energy conservation program that instills both pecuniary and nonpecuniary incentives using a tournament among peer military households. Under the tournament, households only pay for the electricity that exceeds 110 percent of a peer-group average and receive a rebate for each kilowatt-hour below 90 percent of the peer-group average. Prior to the program, no household paid for electricity. We evaluate the impacts of the program in two ways. First, we use difference-in-differences to estimate how the program affected electricity use for those households who paid/received nothing throughout the program in comparison to those who received payments or rebates. Second, we examine how arguably exogenous changes in the peer-group average, driven by entry and exit of households, affected subsequent electricity use by continuing households. Our main result indicates that the interaction between monetary incentives and behavioral factors makes the peer comparison more powerful and dominates consumer responses.