Price elasticities of residential electricity demand: estimates from household panel data in Bangladesh

Hemawathy Balarama, Asad Islam, Jun Sung Kim, Liang Choon Wang

Research output: Contribution to journalArticleResearchpeer-review

Abstract

We collect a household level panel dataset to estimate the price elasticities of electricity demand for different types of urban households in Bangladesh. We use an instrumental variable estimation strategy which exploits exogenous variation in average electricity prices induced by a value-added-tax shock. The results indicate significant heterogeneity in price elasticities by electricity consumption levels. We conduct a number of simulations under alternative policy scenarios to illustrate how incorporating the heterogeneous nature of price elasticities into pricing policy can help decrease electricity demand-supply mismatch and inequality in electricity consumption. The results have important policy implications for developing countries aiming to address major energy issues by implementing tariff reforms.

Original languageEnglish
Article number104937
Number of pages15
JournalEnergy Economics
Volume92
DOIs
Publication statusPublished - Oct 2020

Keywords

  • Demand-supply mismatch
  • Electricity demand
  • Inequality of electricity access
  • Non-liner pricing system
  • Price elasticity
  • Tariff reform

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