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Demand response as a common pool resource game: Nudges versus prices

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  • Penelope Buckley

    (GAEL - Laboratoire d'Economie Appliquée de Grenoble - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - INRA - Institut National de la Recherche Agronomique - CNRS - Centre National de la Recherche Scientifique - UGA [2016-2019] - Université Grenoble Alpes [2016-2019])

  • Daniel Llerena

    (GAEL - Laboratoire d'Economie Appliquée de Grenoble - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - INRA - Institut National de la Recherche Agronomique - CNRS - Centre National de la Recherche Scientifique - UGA [2016-2019] - Université Grenoble Alpes [2016-2019])

Abstract

The aim of demand response is to make energy consumption more flexible during peak periods. Using a contextualised CPR framework, we study energy consumption choices. Subjects decide the consumption level of five activities during 10 periods. The total consumption of these activities is the CPR contribution, and payoffs depend on own consumption and the amount consumed by the group. In the nudge treatment, subjects are nudged towards the socially optimal level of consumption using injunctive norms. The average consumption observed in the nudge treatment is used to calculate the price implemented in the price treatment. The objective is to quantify the nudge via an equivalent price. The main hypotheses are: consumption choices will be lower in the treatment groups compared to the control groups; when the price level is fixed according to the nudge result, consumption choices in the price treatment will be equivalent to those in the nudge treatment. Across all 10 periods, consumption is significantly lower in the nudge treatment, and higher for control groups. In the price treatment, consumption remains between the two at or slightly above the target. We conclude that the nudge treatment performs as well as an equivalent price without the implied loss of welfare. When comparing decisions under the nudge and price treatments to the control groups, the consumption decisions are significantly different from period 2 for the nudge and, consistently different from period 7 for the price. We conclude that the nudge is understood and integrated into subjects' decision making quicker than an equivalent price.

Suggested Citation

  • Penelope Buckley & Daniel Llerena, 2018. "Demand response as a common pool resource game: Nudges versus prices," Working Papers hal-01704457, HAL.
    • Handle: RePEc:hal:wpaper:hal-01704457
    Note: View the original document on HAL open archive server: https://hal.science/hal-01704457
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    References listed on IDEAS

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    1. Schleich, Joachim & Klobasa, Marian & Gölz, Sebastian & Brunner, Marc, 2013. "Effects of feedback on residential electricity demand—Findings from a field trial in Austria," Energy Policy, Elsevier, vol. 61(C), pages 1097-1106.
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    2. Good, Nicholas, 2019. "Using behavioural economic theory in modelling of demand response," Applied Energy, Elsevier, vol. 239(C), pages 107-116.
    3. Lin, Jin & Dong, Jun & Dou, Xihao & Liu, Yao & Yang, Peiwen & Ma, Tongtao, 2022. "Psychological insights for incentive-based demand response incorporating battery energy storage systems: A two-loop Stackelberg game approach," Energy, Elsevier, vol. 239(PC).
    4. Mohseni, Soheil & Brent, Alan C. & Kelly, Scott & Browne, Will N., 2022. "Demand response-integrated investment and operational planning of renewable and sustainable energy systems considering forecast uncertainties: A systematic review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 158(C).
    5. Leandra Scharnhorst & Thorben Sandmeier & Armin Ardone & Wolf Fichtner, 2021. "The Impact of Economic and Non-Economic Incentives to Induce Residential Demand Response—Findings from a Living Lab Experiment," Energies, MDPI, vol. 14(8), pages 1-24, April.
    6. Antinyan, Armenak & Horváth, Gergely & Jia, Mofei, 2020. "Curbing the consumption of positional goods: Behavioral interventions versus taxation," Journal of Economic Behavior & Organization, Elsevier, vol. 179(C), pages 1-21.

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    Keywords

    common pool resource; Demand Response; incentives; laboratory experiment; nudge; price;
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