Quantifying Heterogeneity in the Price Elasticity of Residential Natural Gas

Abstract

We exploit a spatial discontinuity in two natural gas utilities’ service territory—combined with variation in their block-rate pricing structure and a difference in how prima facie determined wholesale prices are deferentially passed though to consumers—to identify average, seasonal, and income-specific own-price elasticities of residential natural gas demand. We estimate an average elasticity ranging from 0.15–0.19 depending on the measure of price used. We further estimate that this elasticity varies substantially across seasons, income groups, and their interaction. We find no significant difference in consumers’ responses to average versus marginal prices. JEL Codes: Q41, Q48, D12, H23, Q31