Arnold Kling

Electricity Pricing

Arnold Kling, Great Questions of Economics
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Lynn Kiesling discusses the peak-load pricing concepts advocated by economists for electricity pricing.

Experimental economists Vernon Smith, Bart Wilson, and Steve Rassenti have shown in repeated experiments that demand responsiveness makes electricity consumers better off, reduce price spikes and price volatility, and reduce the need to build more plants to serve peak demands. Customer demand response also disciplines the ability of wholesale suppliers to raise prices in peak hours, because customers have the alternative of shifting their use to other hours or cutting their use of electricity.

Discussion Question. How might this concept be applied to the Internet or cell phones?

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