Koichiro Ito is an Associate Professor at Harris School of Public Policy at University of Chicago. He received a PhD from UC Berkeley. Prior to joining University of Chicago, he was a SIEPR Postdoctoral Fellow at Stanford University and an Assistant Professor at Boston University.
The Dynamic Impact of Market Integration: Evidence from Renewable Energy Expansion in Chile
NBER Working Paper #30016, May 2022 (with Luis Gonzales and Mar Reguant).
Abstract | Paper | Slides | NBER WP
Effective and economical expansion of renewable energy is one of the most urgent and important challenges of addressing climate change. However, many countries are facing a problem because existing network infrastructures (i.e., transmission networks) were not originally built to accommodate renewables, which creates disconnections between demand centers and renewable supply. In this paper, we study the static and dynamic impacts of market integration on renewable energy expansion. Our theory highlights that statically, market integration improves allocative efficiency by gains from trade, and dynamically, it incentivizes new entry of renewable power plants. Using two recent grid expansions in the Chilean electricity market, we empirically test our theoretical predictions and show that commonly-used event study estimation underestimates the dynamic benefits if renewable investments occur in anticipation of market integration. We build a structural model of power plant entry and show how to correct for such bias. We find that market integration resulted in price convergence across regions, increases in renewable generation, and decreases in generation cost and pollution emissions. Furthermore, a substantial amount of renewable entry would not have occurred in the absence of market integration. We show that ignoring this dynamic effect would substantially understate the benefits of transmission investments.
Paternalism, Autonomy, or Both? Experimental Evidence from Energy Saving Programs
Working Paper, December 2021 (with Takanori Ida, Takunori Ishihara, Daido Kido, Toru Kitagawa, Shosei Sakaguchi, Shusaku Sasaki).
Abstract | Paper
Identifying who should be treated is a central question in economics. There are two competing approaches to targeting - paternalistic and autonomous. In the paternalistic approach, policymakers optimally target the policy given observable individual characteristics. In contrast, the autonomous approach acknowledges that individuals may possess key unobservable information on heterogeneous policy impacts, and allows them to self-select into treatment. In this paper, we propose a new approach that mixes paternalistic assignment and autonomous choice. Our approach uses individual characteristics and empirical welfare maximization to identify who should be treated, untreated, and decide whether to be treated themselves. We apply this method to design a targeting policy for an energy saving programs using data collected in a randomized field experiment. We show that optimally mixing paternalistic assignments and autonomous choice significantly improves the social welfare gain of the policy. Exploiting random variation generated by the field experiment, we develop a method to estimate average treatment effects for each subgroup of individuals who would make the same autonomous treatment choice. Our estimates confirm that the estimated assignment policy optimally allocates individuals to be treated, untreated, or choose themselves based on the relative merits of paternalistic assignments and autonomous choice for individuals types.
Reforming Inefficient Energy Pricing: Evidence from China
NBER Working Paper #26853, March 2020 (with Shuang Zhang).
Abstract | Paper | NBER Digest
Inefficient energy pricing hinders economic development in many countries. We examine long-run effects of a recent heating reform in China that replaced a commonly-used fixed-payment system with individually-metered pricing. Using staggered policy rollouts and administrative data on household-level daily heating consumption, we find that the reform induced long-run reductions in heating usage and generated substantial welfare gains. Consumers gradually learned how to conserve heating effectively, making short-run evaluations underestimate the policy impacts. Our results suggest that energy price reform is an effective way to improve allocative efficiency and air quality in developing countries, where unmetered-inefficient pricing is still ubiquitous.
Selection on Welfare Gains: Experimental Evidence from Electricity Plan Choice
NBER Working Paper #28413, January 2021 (with Takanori Ida and Makoto Tanaka).
American Economic Review, conditionally accepted.
Abstract | Paper
We study a problem in which policymakers need to screen self-selected individuals by unobserved heterogeneity in social welfare gains from a policy intervention. In our framework, the marginal treatment effects and marginal treatment responses arise as key statistics to characterize social welfare. We apply this framework to a randomized field experiment on electricity plan choice. Consumers were offered socially efficient dynamic pricing with randomly assigned take-up incentives. We find that price-elastic consumers—who generate larger welfare gains—are more likely to self-select. Our counterfactual simulations quantify the optimal take-up incentives that exploit observed and unobserved heterogeneity in selection and welfare gains.
Willingness to Pay for Clean Air: Evidence from Air Purifier Markets in China
Journal of Political Economy, 128 (5): 1627-1672, 2020 (Lead Article, with Shuang Zhang)
Abstract | Paper | Slides | Wall Street Journal | Forbes | Bloomberg | Japanese
We develop a framework to estimate willingness to pay (WTP) for clean air from defensive investments on differentiated products. Applying this framework to scanner data on air purifier sales in China, we find that households are willing to pay $1.34 per year to remove 1 μg/m3 of PM10 and $32.7 per year to eliminate policy-induced air pollution created by the Huai River heating policy. Substantial heterogeneity in WTP is explained by household income and exposures to media coverage on air pollution. Using these estimates, we examine welfare implications of existing and counterfactual environmental policies in China.
The Economics of Attribute-Based Regulation: Theory and Evidence from Fuel-Economy Standards
Review of Economics and Statistics, 100 (2): 319-336, 2018. (with Jim Sallee)
Abstract | Paper | Slides | Nikkei Business | Japanese
We develop a theoretical framework to study "attribute-based regulations," under which regulatory compliance depends upon a secondary attribute that is not the intended target of the regulation. Our theory characterizes the distortionary costs and potential benefits of attribute basing. To test our theoretical predictions, we exploit quasi-experiments in Japanese fuel economy regulations, under which fuel-economy targets are step functions of vehicle weight. Using bunching analysis, we identify large distortions in vehicle weight. We then develop a method that leverages double-notched policies to conduct welfare analysis. We evaluate policy alternatives and quantify the important welfare trade-offs created by attribute-based policies.
Moral Suasion and Economic Incentives: Field Experimental Evidence from Energy Demand
American Economic Journal: Economic Policy, 10 (1): 240-67, 2018. (with Takanori Ida and Makoto Tanaka)
Abstract | Paper | Slides | Washington Post | Forbes | Japanese
Firms and governments often use moral suasion and economic incentives to influence intrinsic and extrinsic motivations for economic activities. To investigate persistence of such interventions, we randomly assign households to moral suasion and dynamic pricing that stimulate energy conservation in peak-demand hours. We find significant habituation and dishabituation for moral suasion―the treatment effect diminishes after repeated interventions but can be restored to the original level by a sufficient time interval between interventions. Economic incentives induce larger treatment effects, little habituation, and significant habit formation. Our results suggest moral suasion and economic incentives produce substantially different short-run and longer-run policy impacts.
Sequential Markets, Market Power and Arbitrage
American Economic Review, 106 (7): 1921-57, 2016. (with Mar Reguant)
Abstract | Paper | Slides | Japanese
We develop a framework to characterize strategic behavior in sequential markets under imperfect competition and restricted entry in arbitrage. Our theory predicts that these two elements can generate a systematic price premium. We test the model predictions using microdata from the Iberian electricity market. We show that the observed price differences and firm behavior are consistent with the model. Finally, we quantify the welfare effects of arbitrage using a structural model. In the presence of market power, we show that full arbitrage is not necessarily welfare-enhancing, reducing consumer costs but increasing deadweight loss.
Asymmetric Incentives in Subsidies: Evidence from a Large-Scale Electricity Rebate Program
American Economic Journal: Economic Policy, 7 (3): 209-37, 2015.
Abstract | Paper | Slides
Many countries use substantial public funds to subsidize reductions in negative externalities. Such policy designs create asymmetric incentives because increases in externalities remain unpriced. I investigate the implications of such policies by using a regression discontinuity design in California's electricity rebate program. Using household-level panel data, I find that the incentive produced precisely estimated zero treatment effects on energy conservation in coastal areas. In contrast, the rebate induced short-run and long-run consumption reductions in inland areas. Income, climate, and air conditioner saturation significantly drive the heterogeneity. Finally, I provide a cost-effectiveness analysis and investigate how to improve the policy design.
Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing
American Economic Review, 104 (2): 537-63, 2014.
Abstract | Paper | Slides
Nonlinear pricing and taxation complicate economic decisions by creating multiple marginal prices for the same good. This paper provides a framework to uncover consumers' perceived price of nonlinear price schedules. I exploit price variation at spatial discontinuities in electricity service areas, where households in the same city experience substantially different nonlinear pricing. Using household-level panel data from administrative records, I find strong evidence that consumers respond to average price rather than marginal or expected marginal price. This suboptimizing behavior makes nonlinear pricing unsuccessful in achieving its policy goal of energy conservation and critically changes the welfare implications of nonlinear pricing.
