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Bill Averaging Programs and Consumer Behavior: Theory and Evidence

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  • Beard, T Randolph
  • Gropper, Daniel M
  • Raymond, Jennie E

Abstract

This paper examines consumer behavior under "bill smoothing," a common pricing program for utility customers where monthly payments are equalized over a one year cycle. First, we offer a theoretical model and conclude that bill smoothing is beneficial to consumers, but leads to exaggerated swings in usage over the yearly cycle. Second, we provide statistical evidence on the determinants of voluntary participation in bill smoothing programs by consumers; financial distress and high usage are less important than generally supposed. Finally, empirical tests of our theoretical model find that participation increases overall consumption; and bill smoothing leads to exaggerated usage peaks and troughs, a result that could have implications for load management programs and general energy conservation. Copyright 1998 by Kluwer Academic Publishers

Suggested Citation

  • Beard, T Randolph & Gropper, Daniel M & Raymond, Jennie E, 1998. "Bill Averaging Programs and Consumer Behavior: Theory and Evidence," Journal of Regulatory Economics, Springer, vol. 13(1), pages 19-35, January.
    • Handle: RePEc:kap:regeco:v:13:y:1998:i:1:p:19-35
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    Cited by:

    1. Catherine Hausman, 2019. "Shock Value: Bill Smoothing and Energy Price Pass‐Through," Journal of Industrial Economics, Wiley Blackwell, vol. 67(2), pages 242-278, June.
    2. Lipscomb, Molly & Schechter, Laura, 2018. "Subsidies versus mental accounting nudges: Harnessing mobile payment systems to improve sanitation," Journal of Development Economics, Elsevier, vol. 135(C), pages 235-254.

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