Do Bill Shocks Induce Energy Efficiency Investments?

We present evidence that bill shocks cause residential electricity customers to invest in energy efficiency upgrades. Our identification strategy builds on the fact that prolonged extreme weather events, which raise electricity costs for many customers, fall within a single billing cycle for some customers but are split across two cycles for others. We find that “treated” households that are exposed to average sized bill shocks are 21 percent more likely to invest in energy efficiency than are “control” households. This result suggests that inattention may be a factor in residential energy investment decisions, and that utility companies may be able to exploit bill shocks to promote efficiency investments. JEL Classification: Q40, Q50, D12