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Welfare Effects of Nonlinear Electricity Pricing

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  • Jung S. You
  • So Yeong Lim

Abstract

Block pricing is widespread among electricity and water utilities to protect low-income households and to encourage energy conservation through higher marginal prices. However, whether a block pricing system achieves those objectives is controversial. In this article, we analyze the impact of alternative electricity pricing systems on the welfare of consumers for the case of residential electricity block pricing in Korea. To do this, we first develop a theoretical model to compute each household’s welfare change under alternative pricing systems. Then, we estimate the residential electricity demand function and compute every household’s electricity consumption and expenses under alternative pricing systems.Finally, we compute each household’s welfare change and social welfare to draw policy implications.

Suggested Citation

  • Jung S. You & So Yeong Lim, 2017. "Welfare Effects of Nonlinear Electricity Pricing," The Energy Journal, , vol. 38(1), pages 195-212, January.
    • Handle: RePEc:sae:enejou:v:38:y:2017:i:1:p:195-212
    DOI: 10.5547/01956574.38.1.jyou
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    References listed on IDEAS

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    1. Ziv Bar-Shira & Israel Finkelshtain & Avi Simhon, 2006. "Block-Rate versus Uniform Water Pricing in Agriculture: An Empirical Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(4), pages 986-999.
    2. Choi, Chi-Young & Hu, Ling & Ogaki, Masao, 2008. "Robust estimation for structural spurious regressions and a Hausman-type cointegration test," Journal of Econometrics, Elsevier, vol. 142(1), pages 327-351, January.
    3. Whittington, Dale, 1992. "Possible Adverse Effects of Increasing Block Water Tariffs in Developing Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 41(1), pages 75-87, October.
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