An Analysis of Household Electricity Saving Behavior Using the Stochastic Frontier Function

The main purpose of this study is to investigate the difference between incentive effects and physical condition effects in electricity saving behaviors of households, by applying stochastic frontier models for the demand function. As for incentives, we consider both internal incentives such as environmental consciousness, and external incentives such as the price system and information feedback. This paper makes three contributions to the existing literature. First, we consider the difference in room for saving electricity among households by labeling in this paper the amount of electricity consumption which is possible to be reduced for energy saving as “consumption slack†(i.e. incentive effects), which we separate from the minimum necessary amount of consumption impossible to be reduced for energy saving (i.e. physical condition effects). Our second contribution is that we take the novel approach of using the stochastic frontier model to distinguish the reducible amount from the minimum necessary amount of electricity consumed among households. Last, we empirically examine which of the internal or external incentives are more effective in reducing household electricity consumption. Using data on 561 Japanese households in 2012, we obtain the following results. Consciousness of consumption is more important to electricity saving than external incentives such as demand response and information feedback. Without such consciousness, demand response alone increases consumption slack. Conversely, demand response can reduce consumption slack when combined with a household’s conscious saving. Other findings indicate that in evaluating saving performance, it is necessary to refer to consumption slack rather than to households’ self-evaluation or the observed total amount of consumption.