Heterogeneous Households Research Articles

Household willingness to pay for improving electricity services in Sumba Island, Indonesia: A choice experiment under a multi-tier framework

Global efforts to improve electricity access in developing countries need to go beyond the simple measurement of electrification rates to address the quality of electricity supply. Households' preferences and willingness to pay (WTP) for electricity supply is important information for policy makers, utility companies, and other stakeholders to plan investment in power infrastructure, design business models, and tackle energy-related social equality issues. However, the existing literature is largely focused on consumers' attitudes towards green electricity, while preferences for improving the quality of electricity supply have not been fully researched, especially in the context of deprived areas in developing countries. Based on the World Bank's Multi-Tier Framework (MTF) for measuring energy access, this study conducted a Choice Experiment on the “Iconic Island” of Sumba in Indonesia to investigate households' preferences for four attributes of electricity access: daily supply hours, frequency of unplanned power-cuts, power capacity of using medium/high-power appliances, and monthly electricity fees. The results reveal that reduction of power-cuts, the most studied attribute of power supply in previous studies, is less significant than other attributes in Sumba. Households connected to the main-grid show higher WTP for improving electricity supply than off-grid households. Heterogeneity in households' preferences is significantly associated with gender, age, education level and household income. We discussed policy implications for penetration of renewable energy, prioritising electrification investment and designing service-based electricity tariffs. We also demonstrated the potential for further application of choice experiment results with the MTF of energy access.

Climate Policy and Wealth Distribution

We set up a model with intergenerational bequest transfers and climate damage on the wealth of heterogeneous households. We show that, under credit market imperfections and depending on wealth distribution across households, a balanced budget climate policy may widen the wealth inequality gap between the rich and poor. Climate policy may create positive effects on the wealth of households, but these effects are asymmetric across households in terms of both magnitude and the transmission of gains from a climate policy within households. The gains of the poor from a climate policy are mainly transmitted into improving living standards and the investment in human capital due to the higher marginal return to education investment. By contrast, the gains of the rich from a climate policy are transmitted biasedly into physical capital accumulation and thereby enhance their monopolistic position in the production of intermediate inputs. We show that, for any climate policy, there exists a corresponding threshold of aggregate physical capital. When the aggregate physical capital of the economy exceeds this threshold, the corresponding climate policy may widen the intergenerational bequest transfers among heterogeneous households, thereby contributing to widening the wealth inequality gap between the rich and poor.

House prices, the distribution of household debt and the refinancing channel of monetary policy

We investigate why the effect of monetary policy on aggregate consumption depends on the distribution of household indebtedness. Using UK loan-level micro-data, we identify the fraction of households with a limited ability to smooth consumption and find that the heterogeneous impact of monetary policy on consumption depends on house price dynamics and the share of highly-indebted households. Consumption responds strongly to monetary policy when the share of highly-indebted households is large and house prices have recently decreased, but we find no effect after periods of house price growth. Our results highlight the role of household heterogeneity and the refinancing channel in the transmission of monetary policy.

Household Customers’ Cost of Interruption: Survey Study on Summer Electricity Peak of Xi’an City

In light of China’s Carbon Neutrality Target and facing the fluctuating pressure of power supply brought on by new energy intermittent power generation, it is urgent to mobilize a large number of residential flexible loads that can respond instantaneously to mitigate peak–valley difference. Under a framework of demand-side management (DSM) and utility analysis, we empirically investigate customers’ costs from interrupting typical electrical terminals at the household level. Specifically, by using the contingent valuation method (CVM), we explore the factors that affect households’ Willingness to Accept (WTA) of voluntarily participating in the interruption management during the summer electricity peak and estimate the distribution of households’ WTA values. We find that given the value of WTA, households’ participation rate in the interruption management significantly decreases with the increase in interruption duration and varies with the type of terminal appliance that is on direct interruption management. Moreover, the majority of households are willing to participate in the interruption management even if the compensation amount is low. The factors that determine households’ WTA and the size of their influences vary with the type of electrical terminal. The results imply that differentiating the terminal electricity market and accurately locking on the target terminals by considering the household heterogeneity can reduce the household welfare losses arising from DSM.

Asset market frictions, household heterogeneity, and the liquidity theory of the term structure

We study the channels through which monetary policy influences the term premium in a general equilibrium model. The idiosyncratic liquidity demand shock and asset market participation shock generate liquidation and reinvestment risks regarding bond holdings, and the term premium can be positive or negative depending on the relative strength of the two risks. An increase in the supply of any bond increases the interest rate of all maturities; this enhances the reinvestment risk but weakens the liquidation risk. Through this “liquidity channel,” a negative relationship between the interest rates and the term premium is generated, and the term premium becomes negative when the interest rates are sufficiently high. Moreover, households having different characteristics such as time discount rates and asset market participation rates demand different term premia, and this generates an endogenous market segmentation. Through this “heterogeneity channel,” the large-scale asset purchases program can effectively decrease the term premium at the zero lower bound. Further, the channel is more effective when the households have a greater variance in their characteristics.

Monetary Policy, Redistribution, and Risk Premia

We study the transmission of monetary policy through risk premia in a heterogeneous agent New Keynesian environment. Heterogeneity in households' marginal propensity to take risk (MPR) summarizes differences in portfolio choice on the margin. An unexpected reduction in the nominal interest rate redistributes to households with high MPRs, lowering risk premia and amplifying the stimulus to the real economy. Quantitatively, this mechanism rationalizes the role of news about future excess returns in driving the stock market response to monetary policy shocks and amplifies their real effects by 1.3–1.4 times.

Energy Prices and Household Heterogeneity: Monetary Policy in a Gas-TANK

Energy Prices and Household Heterogeneity: Monetary Policy in a Gas-TANK

Household Heterogeneity in Macroeconomic Models: A Historical Perspective

Household Heterogeneity in Macroeconomic Models: A Historical Perspective

Heterogeneous Household Responses to Energy Price Shocks

Heterogeneous Household Responses to Energy Price Shocks

The environmental cost of land‐use restrictions

Cities with cleaner power plants and lower energy demand tend also to have tighter land‐use restrictions; these restrictions increase housing prices and reduce the incentive for households to live in these lower greenhouse gas‐emitting cities. We use a spatial equilibrium model to quantify the overall effects of land‐use restrictions on the levels and spatial distribution of household carbon emissions. Our model features heterogeneous households, cities that vary in both their power plant technologies and their utility benefits of energy usage, as well as endogenous wages and rents. Relaxation of the current land‐use restrictions in California to the level faced by the median urban household in the US leads to a 0.6% drop in national household carbon emissions and a decrease in the social cost of carbon of $310 million annually.

Who Cares about Inflation? Endogenous Expectation Formation of Heterogeneous Households

Who Cares about Inflation? Endogenous Expectation Formation of Heterogeneous Households

Crisis propagation in a heterogeneous self-reflexive DSGE model.

We study a self-reflexive DSGE model with heterogeneous households, aimed at characterising the impact of economic recessions on the different strata of the society. Our framework allows to analyse the combined effect of income inequalities and confidence feedback mediated by heterogeneous social networks. By varying the parameters of the model, we find different crisis typologies: loss of confidence may propagate mostly within high income households, or mostly within low income households, with a rather sharp transition between the two. We find that crises are more severe for segregated networks (where confidence feedback is essentially mediated between agents of the same social class), for which cascading contagion effects are stronger. For the same reason, larger income inequalities tend to reduce, in our model, the probability of global crises. Finally, we are able to reproduce a perhaps counter-intuitive empirical finding: in countries with higher Gini coefficients, the consumption of the lowest income households tends to drop less than that of the highest incomes in crisis times.

Developing policy packages for low-carbon passenger transport: A mixed methods analysis of trade-offs and synergies

Transformation to climate neutrality of the transport sector raises multiple challenges at a time, with potentially conflicting objectives and further external effects. This calls for a balanced policy package of which empirical assessment is needed in order to i) quantify its effectiveness and ii) reveal effects of potential overlaps and interactions associated with individual measures within the package. This paper analyses the economic, environmental and distributional effects of a policy package that supports low-carbon passenger transport in Austria, co-developed with policy experts and stakeholders. The package includes hard measures such as a mandated phase-out of conventional cars and explicit road pricing, as well as soft measures to foster the uptake of public transportation. To assess these packages we make use of a computable general equilibrium model for Austria that incorporates heterogeneous household groups, CO2 emissions and a detailed representation of the transport sector. We show that the decoupling of economic welfare and negative external effects of passenger transport is possible with a balanced policy package. Our analysis also highlights potential urban-rural conflicts, regressive impacts and negative public budget implications of single policy measures, issues that the suggested policy package as a whole can mitigate.

Fiscal policy shocks and international spillovers

The domestic and international transmission mechanism of fiscal policy shocks are analysed in the United States and in Germany. Using a Bayesian VAR approach, we find that in both of these countries a fiscal expansion is associated with increases in output as well as in private consumption and investment. The terms of trade, which affect the international transmission of fiscal policy shocks, depreciate in response to a fiscal expansion, thus transferring some of the increased domestic purchasing power abroad. A US government spending shock is expansionary for all non-US G7 members. A German government spending shock is expansionary for most, but not all European economies, both within and outside the euro area. The dynamics of the BVAR can be rationalised using a dynamic stochastic general equilibrium model where heterogeneous households and firms face borrowing constraints.

Fiscal opacity and reduction of income inequality through taxation: Effects on economic growth

We analyze the effect of fiscal opacity regarding the budget deficit and the reduction of income inequality through progressive direct taxation on economic growth. Using a sample of thirteen OECD countries from 1980–2016, we propose fiscal opacity indicators, through signal-to-noise ratios, that reflect the public’s ignorance regarding the budget deficit. Moreover, we calculate contraction factors to consider the income inequality through income taxation of heterogeneous households. The findings show that an increase in fiscal opacity decreases growth and that there is an asymmetric nature of redistributive taxation on economic growth. Furthermore, it is possible to conjecture that fiscal opacity can amplify income inequality’s asymmetric effect on growth.

Who bears the burden of greening electricity?

Faced with the threat of climate change many countries are promoting renewable energies to decarbonize their energy system. A common policy to foster electricity from renewable energy sources are feed-in tariffs which are financed by surcharges on electricity prices. Higher electricity prices in turn raise concerns on regressive distributional impacts. In this paper, we investigate the distributional impacts of three alternative policies to subsidize renewable energy production in Spain: (i) exemptions from the electricity surcharge for residential consumers, (ii) an increase in mineral oil taxes, and (iii) an increase in value-added taxes. We find that all three options can attenuate the regressive distributional effects compared to feed-in tariffs. For our quantitative impact assessment, we couple a microsimulation model with a computable general equilibrium model to capture the incidence on heterogeneous households in an economy-wide framework.

Adoption of complementary climate-smart agricultural technologies: lessons from Lushoto in Tanzania

BackgroundAgriculture is important for economic growth and development in many countries in Sub-Saharan Africa, including Tanzania. However, agricultural production and productivity remain relatively low, with significant yield gaps attributed to factors such as limited access to and low adoption of appropriate agricultural technologies, and climate-related risks resulting from climate variability and change. This paper explores the drivers of adoption of climate-smart agricultural (CSA) technologies and practices, taking into account the complementarity among agricultural technologies and heterogeneity of the farm households, using data from Lushoto in Tanzania.MethodsWe use a Multivariate Probit analysis of cross-sectional data collected from 264 smallholder farmers in Lushoto—a climate hotspot in Tanzania—to understand the drivers of household decisions to adopt CSA technologies and practices. The technologies included diversification of multiple stress (drought, floods, pests, diseases)-tolerant crop varieties, use of fertilizers, and application of herbicides and pesticides. The Multivariate Probit model was preferred as it takes into account the inter-relationships of the technologies as well as heterogeneity of the smallholder farmers for more robust estimates. The independent variables used in the analysis included household socio-economic factors such as the relative importance of crop and livestock enterprises, household land size, social capital, access to agricultural credit and weather information, previous experience with fertilizer use and household characteristics (age, education and gender of household head, and household size).ResultsAbout 63% of the households diversified their crop enterprises, shifting to improved resilient crops and crop varieties. Another 37% adopted fertilizers, while 38% applied pesticides and herbicides. Conditional on the unobservable heterogeneity effects, the results show that household adoption decisions on diversification of multiple stress-tolerant crops and crop varieties, fertilizer, and pesticides and herbicides are complementary. In addition, the results confirm existence of unobserved heterogeneity effects leading to varying impact of the explanatory variables on adoption decisions among farmers with similar observable characteristics.ConclusionsThe findings indicate that any effective CSA technology adoption and diffusion strategies and policies should take into account the complementarity of the technologies and heterogeneity of the smallholder farmers. Therefore, inter-related technologies should be promoted as a package or bundled while taking into consideration household and farm-level constraints to adoption.

Household debt and debt to income: The role of business ownership

This paper studies private business ownership as a source of heterogeneity of households’ indebtedness. We analyse micro-data on the debt side of household balance sheets in a small economy, with an underdeveloped financial system. We find that households’ behaviour in the credit markets varies substantially between employees and entrepreneurs; and that separately considering formal and informal business ownership is first-order. Our results indicate that the probability of being indebted is higher for employees. We also show that debt to income elasticity differs markedly across types of households, with employees (informal business owners) being the most (least) sensitive to income variations. Finally, we go beyond the mean, and find important differences between average elasticities and those at different quantiles of debt for formal entrepreneurs, while no divergences are detected for employees or informal business owners.

Is carbon pricing regressive? Insights from a recursive-dynamic CGE analysis with heterogeneous households for Austria

We explore the macroeconomic and distributional impacts of unilateral carbon pricing in Austrian economic sectors, which are not covered by the EU emission trading scheme ETS, under various assumptions of revenue usage. We use a recursive-dynamic computable general equilibrium model with twelve groups of private households, differentiated by income quartile and location of residence. Pricing of non-ETS CO2 emissions without any targeted compensation of households turns out to be progressive (when measured in equivalent variation, or welfare) with households living in the periphery being affected the most. This outcome is explained by the dominating progressive factor income effect, which works against regressive consumer price impacts. Considering the positive contribution to welfare from increased public goods provision, low-income households are even better off than without carbon pricing. We compare the revenue usage options ‘no targeted compensation’ with either unconditional or revenue-neutral ‘eco-bonus per capita payments’ as well as revenue-neutral cuts in either ‘labor tax rates’ or ‘value added tax rates.’ We discuss our results from a Utilitarian, Rawlsian and polarization-averse equity perspective. Applying equal weights to the criteria ‘environmental effectiveness’, ‘cost effectiveness’, ‘public budget’ and ‘welfare’, Rawlsian decision makers would prefer the no targeted compensation option. Otherwise, the revenue usage option of revenue-neutral cuts in labor tax rates balance best investigated multiple criteria.

On the marginal excess burden of taxation in an overlapping generations model

We extend marginal excess burden (MEB) analysis in public finance literature to a dynamic general equilibrium model with incomplete markets and heterogeneous households. This extension allows us to quantitatively assess efficiency ranking and incidence of taxes. Our results indicate a disparity in welfare cost and distributional consequence of different forms of taxation on capital, labor and consumption. According to our MEB ranking, capital income taxation appears to be least efficient as it results in larger marginal excess burdens, compared to labor income tax and consumption tax. The tax incidence analysis shows variation of tax burdens across households, depending on their age, income type and generation. In particular, older households with higher income bear the highest burden of company income tax; meanwhile, future born households bear the highest burden of personal income tax. Hence, our MEB analysis demonstrates a fruitful approach to better understanding efficiency and incidence of tax reforms in one unified framework.