# I. INTRODUCTION

Suppose that energy prices experience a shock. Does energy consumption respond? How much and how promptly? These are key questions in the study of a wide range of macroeconomic, regulatory and environmental issues, such as the transmission channels of energy price shocks, optimal taxation and pricing policies in energy markets, and interventions to address climate change. Naturally, economists have a long-standing interest in estimating consumption responses to price changes in energy markets.<sup>1</sup> Progress towards this aim has been complicated by an important identification challenge, however. Since consumers typically experience the same events at essentially the same time, it has been difficult to construct the equivalent of randomly assigned treatment and control groups and thereby ground the estimated price-elasticities on a well-defined counterfactual (Reiss and White [2008]).

In this paper, we exploit unique features of a recently introduced tariff schedule for residential natural gas in Greater Buenos Aires to estimate the short-run impact of price shocks on residential gas utilization.<sup>2</sup> The revised schedule induces a non-linear and non-monotonic relationship between annual previously accumulated consumption and unit prices, thus giving rise to exogenous price variation. In particular, the introduction of a threshold for defining unit prices based on previously accumulated consumption approximates a randomly assigned price differential for a large number of consumers on each side of the threshold, allowing us to build treatment and control groups to estimate the impact of interest. We estimate the demand effect of a price shock using a regression discontinuity (RD) design whereby the gas consumption levels of households situated barely above the tariff discontinuity are compared with those of households located barely below.

We implement the RD design on administrative records of the natural gas distribution company, gathering longitudinal data on the unit prices and consumption levels of each consumer located near the tariff discontinuity ‒ the same information that these households received in their utility bills. We find that an increase in the average price of natural gas in the utility bill received by consumers induces a statistically significant and prompt decline in residential gas utilization: a 25% price increase reduced residential gas consumption by 3.8% in the subsequent two-month period. This result suggests that policy interventions via the price mechanism may constitute a powerful instrument to influence the patterns of residential energy utilization, even in a relatively short time span.<sup>3</sup> An important feature of our research design is that it exploits the specific information set available to consumers to estimate the effect of interest. In particular, because households are reclassified every billing period on the basis of their annual accumulated consumption, fully informed consumers in the treatment and control group face the same expected prices moving forward. However, we provide survey evidence suggesting that consumers have highly imperfect knowledge about the price determination mechanism, and appear to infer prices from recent past bills. In addition, we offer strong statistical evidence that consumers do not manipulate strategically their annual accumulated consumption. For these reasons, the resulting estimates are especially relevant for residential energy markets characterized by ex-post billing where 2