ESSAYS ON PRICING AND INFORMATION IN RESIDENTIAL DEMAND OF PIPED WATER AND ELECTRICITY

Pricing policies for public services, like water and electricity, have a great challenge of incorporating goals of poverty alleviation, while at the same time developing mechanisms to achieve resource management and financial sustainability for service providers. Complex policies have been developed for decades to concomitantly achieve those three goals; the most evident example is the design of quantity-based tariffs. However, the challenges are still pressing; economic mechanisms, including pricing policies, have not attained the desired goals, and in some cases they have even had adverse effects. Important questions remain unanswered, including questions on two realms: i) from a social welfare analysis there are questions on how to better assess and meet the distributional goals of these policies, and ii) from a consumer behavior analysis, there are questions on how residential consumers react to price and quantity information, what triggers demand responses to pricing and conservation policies and what role billing information plays in this process. While these questions apply to many places globally, the focus of this dissertation is to address these topics with case studies of two urban areas in developing countries, Addis Ababa, Ethiopia and San Jose, Costa RicaThe first essay evaluates the distribution of electricity subsidies to residential customers in Addis Ababa, Ethiopia in 2016 that results from the current increasing block tariff (IBT) structure. Customer billing data supplied by the electricity utility was matched with socioeconomic information collected from a survey of 987 households, and used with a utility-specific estimate of the costs of electricity service to estimate household-specific subsidies. The analysis differentiates between primary customers, who own an electricity account, and nonprimary customers, who pay a primary account holder, and presents the first detailed analysis of the incidence of subsidies provided to households with private versus shared electricity connections. Results show that households in the poorest quintile received 7% of the total subsidy, while households in the wealthiest quintile received 37%. The majority of households with shared connections were in poorer quintiles, and 80% in the poorest quintile were nonprimary customers. The regressive outcomes of the IBT structure are explained by two of its attributes: (1) the volumetric rates in all tariff blocks are substantially below the total average cost of delivery of the service; and (2) there is only a moderate association between electricity consumption and household wealth.The second essay presents the first detailed analysis of the combined effects of increasing block tariff (IBT) structures for both electricity and water in an urban area of a developing country. In Addis Ababa, an IBT has been used to calculate households’ monthly bills for electricity and water services. This study estimates the magnitude of combined water and electricity subsidies received by households with private connections to both the electricity grid and the piped network water in 2016, and it evaluates the distribution of these subsidies among wealth groups. Customer billing data supplied by utility companies are matched with socioeconomic information collected through a household survey. Results show that the combined subsidies are large. The average household receives a subsidy of USD 26 per month, about 6% of household income. The findings also show that both electricity and water subsidies under the IBT disproportionately accrue to richer households. The poorest quintile receives 12% of the total subsidies for electricity and water services, while the richest quintile receives 31%. The IBT used in the water sector performed worse in terms of targeting of subsidies to poor households than the IBT used in the electricity sector. The third essay applies attention theory and builds on previous empirical work to examine what factors determine residential customers’ attention to bill information. The study takes advantage of the transition to a digital water billing program in the city of San Jose, Costa Rica, and apply multivariate regression analysis to evaluate how residential consumers consulted their bills following the introduction of this new system. Evaluating how residential customers use bill information is relevant to understand biases in consumer behavior, to improve utility-costumers communication channels, and to account for heterogeneity in the use of information. This research uses survey data from 850 households matched to utility historical billing records. Results show that bill consultation is correlated with several factors: satisfaction with, and accessibility of, new communication channels; customers’ expectations on costs and fairness; baseline water consumption, expenditure on water, and knowledge of the information provided in the bill. These variables are better predictors of bill consultation than socio-demographic variables. In addition, adaptation to new communication channels appears to be related to the same factors that influence information search, and also to socio-demographic characteristics, such as age, gender, education and income.Doctor of Philosoph