Another important conclusion from our analysis is that the way in which customers process information about complex tariff structures is an important driver of their behavior. Indeed, we provide survey evidence that consumers have highly imperfect knowledge about the price determination mechanism, and appear to infer prices from past utility bills. In addition, we offer strong statistical evidence that households do not manipulate strategically their gas consumption around the relevant threshold, despite strong incentives for doing so under the prevailing price determination mechanism. The evidence we provide is therefore especially relevant for residential energy markets characterized by complex tariff structures and ex-post billing. While it has long been stressed that imperfect information in residential energy markets plays an important role in shaping consumption responses to price changes (Shin [1985]), there is still little direct evidence on consumer behavior in the presence of complex price schedules and expost billing. In this regard, our findings are consistent with (and complementary to) those of recent studies by Bushnell and Mansur [2005] and Ito [2013]. Examining the electricity market in San Diego, Bushnell and Mansur [2005] provide evidence that customers respond more to outdated prices from their last bill than to current market conditions. Ito [2013] finds that consumers respond to lagged average prices rather than marginal or expected marginal prices when faced with nonlinear electricity price schedules. Taken together this evidence suggests that, in order to precisely estimate the impacts of complex price schedules on energy utilization, policy makers and regulators need to move beyond the assumption of perfect awareness of such schedules by consumers.

# VI. CONCLUDING REMARKS

We have exploited unique features of the tariff schedule for natural gas in Greater Buenos Aires, along with survey evidence on the specific information set possessed by consumers, to estimate the short-run effect of price shocks on residential gas consumption. The revised tariff schedule induced a non-linear and non-monotonic relationship between annual accumulated consumption and unit prices, thus generating exogenous price variation. Drawing on administrative records on the utility bills of residential consumers, we have estimated the short-run consumption response to a price shock using an RD design whereby two-month consumption levels of households situated barely above an important tariff discontinuity are compared with those of consumers located barely below – hence focusing on a large group of relatively homogeneous consumers facing sizable differences in prices.

We provide evidence that a price increase in the utility bill received by consumers causes a prompt and significant decline in gas consumption. We also show that customers appear to respond more to recent past bills than to expected prices moving forward. Our estimates therefore suggest that policy interventions via the price mechanism are powerful instruments to influence residential energy utilization patterns, but argue against an assumption of perfect awareness of complex price schedules by consumers.

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