lecture_consumerpolicies_part1

lecture_consumerpolicies_part1 - Energy Policies Targeting...

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Energy Policies Targeting Consumers Energy Economics and Policy ECON 489/689
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2 Theme #1: Policies Expanding Consumer Choice Where this discussion is headed: Which policy is better? 1) Allow homeowners to choose among a set of electricity providers? 2) Have one single regulated retailer? Transmission Distribution Generation Retail Supply
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3 Why Allow Consumer Choice Cars? Schools? Pension funds? Health insurance plan?
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4 Risk of Allowing Consumer Choice Need for “complex” decisionmaking Cognitive function change over the lifecycle Laibson, 2010 Example #1 Example #2
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5 Risk of Allowing Consumer Choice Consumer Inertia : consumers stick with previous choice rather than switching to a “better” one Example: Choosing the Least Cost Health Insurance Plan Year 1 Year 2 Source: Handel (2011) Only 11% of customers who (for sure) would save by switching did switch!
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6 Broad Framework for Assessing Benefits of Polices that Expand Consumer Choice (1) Is there scope for new innovation and cost reduction? (2) Tradeoff of allowing for different preferences vs. decision complexity/consumer inertia <see following graph>
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7 Tradeoff of allowing for different preferences vs. decision complexity/consumer inertia Decisionmaking Preference Heterogeneity Easy/No Inertia Complex/Inertia Same Prefs Different Prefs Stronger candidates for choice Weaker candidates for choice
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8 Back to Residential Electricity… What should we think about in considering whether “choice” is good policy?
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lecture_consumerpolicies_part1 - Energy Policies Targeting...

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