Smart Power Limits: Designing Shortage Mechanisms for Extreme Events (WP-26-07)
Mar Reguant and Mayra Wagner
As shortages of resources like water and electricity due to extreme weather events become more frequent, high prices alone may fail to curb demand, making shortages more common. Reguant and Wagner examine a power limit policy for residential electricity households that rations electricity consumption rather than setting it to zero, as in a traditional rolling blackout. They find that power limits can provide equivalent savings to large blackouts, even when generous. Additionally, due to selection, power limits reduce the number of households affected by a shortage event. The authors conclude by discussing the welfare consequences of power limits and their heterogeneous impact across households.