Default Effects And Follow-On Behaviour: Evidence From An Electricity Pricing Program. (12th April 2021)

• Record Type: Journal Article
• Authors: Fowlie, Meredith; Wolfram, Catherine; Baylis, Patrick; Spurlock, C Anna; Todd-Blick, Annika; Cappers, Peter
• Is Part Of: Review of economic studies. Volume 88:Number 6(2021)
• Page Start: 2886
• Page End: 2934
• Publication Date: 2021-04-12
• Subjects: Default choice -- Electricity markets -- Rate design; D90 -- Q41 -- D80; Economics -- Periodicals; 330
• DOI: 10.1093/restud/rdab018
• Languages: English
• ISSNs: 0034-6527

Abstract

Abstract: We study default effects in the context of a residential electricity-pricing program. In the large-scale randomized controlled trial we analyse, one treatment group was given the option to opt-in to time-varying pricing while another was defaulted into the program but allowed to opt-out. We provide dramatic evidence of a default effect on program participation, consistent with previous research. A novel feature of our study is that we also observe how the default manipulation impacts customers' subsequent electricity consumption. Passive consumers who did not opt-out but would not have opted in—comprising more than 70$\%$ of the sample—nonetheless reduce consumption in response to higher prices. Observing of this follow-on behaviour enables us to assess competing explanations for the default effect. We draw conclusions about the likely welfare effects of defaulting customers onto time-varying pricing.