11/10/2016
More Info | Koichiro Ito (Chicago)
Information Frictions, Inertia, and Selection on Elasticity: A Field Experiment on Electricity Tariff Choice
We develop a discrete-continuous choice model to characterize the link between plan choice, switching frictions, and subsequent continuous choice of service utilization. We then test the model predictions by using a randomized controlled trial in electricity tariff choice. We and that both information frictions and inertia prevent consumers from switching to a tariff that is privately and socially beneficial. While interventions to mitigate these frictions increased overall switching rates, they also incentivized relatively price-inelastic consumers to switch. We characterize this phenomenon by selection on elasticity and show how it affects the optimal rate
design in the presence of switching frictions.
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