Multidimensional Non-Linear Pricing: Evidence from Energy Consumption with a Mixture Pricing Mechanism

Abstract

This paper develops a novel methodology for structurally estimating a multi-dimensional non-linear pricing scheme with more than one decision variable. Using a rich and unique panel data of residents’ electricity consumption, we provide a structural analysis of how economic agents choose their electricity consumption amount and allocation under a mixture of two non-linear pricing systems: an Increasing Block Pricing (IBP) system and a Time-of-Use (ToU) Pricing system. The results imply that a policymaker needs to be very careful in choosing reasonable pricing options based on policy objectives because a wrong choice may lead to an outcome contrary to the original purpose.