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An empirical model of the decision to switch between electricity price contracts
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.ORCID iD: 0000-0001-9244-7018
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.
2019 (English)In: Journal of Business Analytics, ISSN 2573-234X, Vol. 2, no 1Article in journal (Refereed) Published
Abstract [en]

In this paper, we explore how sensitive the timing of switches between electricity contracts is to current and past prices. We present a model for time series of individual binary decisions which depends on the history of past and present prices. The model is based on the Bayesian learning procedure which is at the core of sequential decision-making. Given a-priori distributions of the information conditional on the state of the world, we show that the model captures dependence on past prices in a straightforward fashion. We estimate by maximum likelihood the parameters of the model on a sample of Swedish households who decide over time between competing electricity price contracts. The estimated parameters suggest that households do respond to prices by switching between contracts and that the response to price can be sizeable for alternative price processes. Importantly, the model structure implies that in general, the response to a price change will not be immediate but delayed.

Place, publisher, year, edition, pages
Taylor & Francis, 2019. Vol. 2, no 1
Keywords [en]
Binary Decision, Bayesian Learning, Contract Choice, Price, Survival Analysis
National Category
Economics
Research subject
Economics; marketing; Economic History
Identifiers
URN: urn:nbn:se:umu:diva-141553DOI: 10.1080/2573234X.2019.1645575OAI: oai:DiVA.org:umu-141553DiVA, id: diva2:1155382
Available from: 2017-11-07 Created: 2017-11-07 Last updated: 2019-10-14Bibliographically approved

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Lanot, GauthierVesterberg, Mattias

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CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf