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Minimal Adjustment Costs and the Optimal Choice of Inputs Under Time-of-Use Electricity Rates

Author

Listed:
  • Yishai Spector

    (School of management, The Hebrew University, Jerusalem, Israel)

  • Asher Tishler

    (Faculty of Management, Tel Aviv University, Tel Aviv, Israel, and College of Business Administration, The University of Iowa, Iowa City, Iowa 52242)

  • Yinyu Ye

    (College of Business Administration, The University of Iowa, Iowa City, Iowa 52242)

Abstract

In Time-of-Use(TOU) pricing schemes, utilities charge rates that depend on the time of day and the season of the year at which electricity is used. Estimates of the effects of TOU rates on business customers in the U.S. and Israel demonstrate that most firms do not appear to respond at all to newly introduced TOU rates, but those that do respond make substantial adjustments. In this paper we show that adjustment costs associated with changing the level of employment can explain the observed pattern of behavior in the U.S. and Israel. We apply our model to large industrial firms in Israel and show that it predicts their actual responses to TOU rates quite well.

Suggested Citation

  • Yishai Spector & Asher Tishler & Yinyu Ye, 1995. "Minimal Adjustment Costs and the Optimal Choice of Inputs Under Time-of-Use Electricity Rates," Management Science, INFORMS, vol. 41(10), pages 1679-1692, October.
    • Handle: RePEc:inm:ormnsc:v:41:y:1995:i:10:p:1679-1692
    DOI: 10.1287/mnsc.41.10.1679
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    Cited by:

    1. Han, Xintong & Liu, Zimin & Wang, Tong, 2023. "Nonlinear pricing in multidimensional context: An empirical analysis of energy consumption," International Journal of Industrial Organization, Elsevier, vol. 91(C).
    2. Yang, Liu & Dong, Ciwei & Wan, C.L. Johnny & Ng, Chi To, 2013. "Electricity time-of-use tariff with consumer behavior consideration," International Journal of Production Economics, Elsevier, vol. 146(2), pages 402-410.

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