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Working Paper
Optimal Second-best Menu Design: Evidence from Residential Electricity Plans
Utilities increasingly sell electricity using complex menus of time-constant and time-varying price schedules. We study how to design such a menu to maximize social welfare in a second-best environment where the marginal private and external costs of generating electricity vary over time, institutional constraints prevent mandating time-varying pricing and consumer behavior is distorted by frictions. We develop a model of plan choice, consumption and intertemporal substitution with time-varying marginal social costs and estimate it using administrative data from a large utility. We provide ...