OPTIMAL TARIFF DESIGN UNDER CONSUMER SELF-SELECTION

Citation
M. Rasanen et al., OPTIMAL TARIFF DESIGN UNDER CONSUMER SELF-SELECTION, Energy economics, 19(2), 1997, pp. 151-167
Citations number
17
Language
INGLESE
art.tipo
Article
Categorie Soggetti
Economics
Journal title
ISSN journal
0140-9883
Volume
19
Issue
2
Year of publication
1997
Pages
151 - 167
Database
ISI
SICI code
0140-9883(1997)19:2<151:OTDUCS>2.0.ZU;2-4
Abstract
This paper considers the design of electricity tariffs to guide an ind ividual consumer to select the tariff designed for his/her consumption pattern. In our model, the utility maximizes the weighted sum of indi vidual consumers' benefits of electricity consumption subject to the u tility's revenue requirement constraints, The consumers' free choice o f tariffs is ensured with the so-called 'self-selection constraints'. We analyze the relationship between the consumers' optimal choice of t ariffs and the weights in the aggregated consumers' benefit function. If such weights exist, then they will guarantee the consumers' optimal choice of tariffs and the efficient consumption patterns. We also ana lyze the welfare effects, by using demand parameters estimated from a Finnish dynamic pricing experiment. The results indicate that it is po ssible to design an efficient tariff menu with the welfare losses caus ed by the self-selection constraints being small compared with the cos ts created when some consumers choose tariffs other than those assigne d for them.