Fowlie, Meredith, Wolfram, Catherine, Spurlock, Anna, Todd, Annika, Baylis, Patrick, and Cappers, Peter “Default Effects and Follow-On Behavior: Evidence From An Electricity Pricing Program” (Revised August 2020) (Revised version published in Review of Economic Studies, March 2021) | WP-280R
We study default effects in the context of a residential electricity-pricing program. We analyze a large scale randomized controlled trial in which one treatment group was given the option to opt-in to time varying pricing while another was defaulted into the program but allowed to opt-out. We provide dramatic evidence of a default effect on program participation, consistent with previous research. A novel feature of our study is that we also observe how the default manipulation impacts customers’ subsequent electricity consumption. Passive consumers who did not opt-out but would not have opted in — comprising more than 70 percent of the sample — nonetheless reduce consumption in response to higher prices. Observation of this follow-on behavior enables us to assess competing explanations for the
default effect. We draw conclusions about the likely welfare effects of defaulting customers onto time-varying pricing.