Do Bill Shocks Induce Energy Efficiency Investments?

Abstract: Inattention can lead to suboptimal investment in energy efficiency. We study whether electricity bill shocks draw attention to the benefits of home energy efficiency investments. Our novel identification strategy builds on the fact that prolonged extreme weather events (which raise electricity costs for many customers) fall within a single billing cycle for some customers but are split across cycles for others. We find that households exposed to average sized bill shocks are 22 percent more likely to invest in energy efficiency than households with normal bills. This result suggests that inattention is indeed a factor in residential energy decisions and utilities may be able to leverage bill shocks to promote efficiency investments.

DOI: https://doi.org/10.24149/wp2405

Read paper | See all Working Papers