Crampes, Claude and Renault, Jerôme (2025) Assistance to electricity consumers with price misperception. TSE Working Paper, n. 25-1613, Toulouse

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Abstract

Electricity is consumed continuously night and day and is not storable at large scale.
Consequently, in an electricity industry organized and managed efficiently, demand
should be tightly responsive to time-varying prices. We explore the consequences of the
limited ability of electricity consumers to use price signals in their decisions to withdraw
energy from the grid and the advantages of an assistance service that can correct
this bias. Depending on the statistical distribution of price misperception types, we
determine the allocation of assistance that allows to decrease total consumption and the
outcome of different market structures. Because of the impossibility of distinguishing
between consumers who underestimate and those who overestimate electricity prices,
we show that it may be suboptimal to organize a market for assistance. We also show
that it is less efficient to rely on a private integrated monopoly than on two separate
private monopolies, one for assistance, the other for energy.