Utilities Included: Split Incentives in Commercial Electricity Contracts
The largest decile of commercial electricity customers comprises half of commercial sector electricity usage. We quantify a substantial split incentives problem that exists when these large firms are on electricity-included property lease contracts. Using exogenous variation in weather shocks, we show that customers on tenant-paid contracts use 6-14% less electricity in summer months. The policy implications are promising. Nationwide energy savings from aligning incentives for the largest 10% of commercial customers exceeds analogous savings from the entire residential electricity sector. It is also cost-effective: switching to tenant-paid contracts via sub-metering has a private payoff period of under one year.
|Keywords||Electricity, Principal-Agent Problem, Contracts.|
|JEL||Firm Behavior: Empirical Analysis (jel D22), Transactional Relationships; Contracts and Reputation; Networks (jel L14), Valuation of Environmental Effects (jel Q51)|
|Publisher||Department of Economics|
|Series||Carleton Economic Papers|
Jessoe, Katrina, Papineau, M, & Rapson, David. (2017). Utilities Included: Split Incentives in Commercial Electricity Contracts (No. CEP 17-07). Carleton Economic Papers. Department of Economics.