Behavioral economics applied to the peak-load problem

Posted on April 24, 2013  /  0 Comments

In our recent intervention on Sri Lanka’s electricity tariffs, we offered to help the regulatory agency and the service suppliers apply the learnings of behavioral economics to the task of reducing the five percent of peak-load demand that was responsible for 17 percent of the total cost. In this oped, an author we quoted in the submission, supports pilot project proposed by the transport authority of Singapore.

By providing free train rides, the LTA hopes to harness the power of free to shift demand from peak to off-peak travel. Congestion is a 10 to 20 per cent phenomenon; transport planners do not need to shift a majority of commuters to off-peak hours. As long as 10 to 20 per cent do, that is sufficient to alleviate congestion and improve the commuting experience for all.

But shifting 10 to 20 per cent of commuters may not be as easy as the power of free suggests.

For many of us, the only times when we make a conscious and deliberate decision about when to begin our commute are during the first few days on a job or on rare occasions – such as when we have an unusually early meeting.

But outside of these occasions, once our commuting decision has been made, we tend to rely on routines that unfold automatically every day. This power of habit suggests that unless something that disrupts our routine occurs, we are unlikely to change.

Whether the power of free would triumph over the power of habits for at least 10 to 20 per cent of commuters is an empirical question. The pilot experiment will reveal to us the extent to which this is true.

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