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Econometrics Workshop: Impact of Income on Household Electricity Consumption
Dr. Adrienne Ohler will present her research with Yewande Marquis, former graduate student at ISU, on The Impact of Income on Household Electricity Consumption: A Study of Price and Income Elasticities Using Categorical Data.
Abstract: Electricity policies are often implemented with concern for low-income households, yet little is known about the impact that income changes have on a household’s electricity consumption. Given that the residential sector accounts for over one-fifth of the total primary energy consumption in the US, understanding the factors that effect consumption can help inform energy policy. This paper examines household differences in electricity usage across income levels using data from the EIA’s 2009 Residential Energy Consumption Survey. Previous research on electricity usage across incomes has been limited due to unobservability of income, and in studies where income is observable, the researchers fail to examine the interactions between income and the appliance stock. Thus, we extend previous research by examining price and income elasticities across income levels. Following the conditional mean method presented by Hsiao (1985), we estimate income levels based on the various characteristics of each respondent, allowing us to estimate a demand elasticities across income. Results show that as income increases, the likelihood a household utilizes electricity as a fuel source for heating and/or water heating decreases as does the likelihood a person stays at home during the day, but the number and size of refrigerators and TVs are likely to increase. The changing appliance stock and electricity usage suggests that elasticities vary by appliance ownership. The results can inform policymakers on the impact that energy policy can have on electricity demand, particularly policies targeted toward specific income groups.