Understanding Reference-Dependent Behaviors in Determining Electricity Consumption of Korean Households: Empirical Evidence and Policy Implications

This paper examines whether reference-dependent preferences play a role in determining household electricity consumption in the Korean context. To do so, we first establish six variables of reference costs based on monthly electricity billing information of the 1040 Korean household survey dataset and then test whether these reference costs affect the electricity consumption in the subsequent months using a probit regression analysis. The empirical results show that the residential electricity consumption for the current month is determined by the reference cost in comparison to the actual costs of the previous months. The significant role of reference costs in determining electricity consumption implies that the behaviors of the Korean residential electricity consumers can be explained by the prospect theory. Furthermore, as a policy implication, these results suggest non-price interventions for residential electricity conservation in Korea.