ADB Institute

Featured Speaker Webinar with Prof. Yuta Toyama

The webinar featured Professor Yuta Toyama of Waseda University presenting his joint research on nonlinear electricity pricing, specifically how consumer misperception can undermine policy goals. Using the case of Bhutan’s 2013 free‑first‑100 kWh subsidy for rural households, the study blends structural econometrics with administrative billing data to evaluate welfare and distributional outcomes. The analysis shows that tiered tariffs, common in many countries, can protect low‑income users while discouraging high‑consumption households. However, when consumers misunderstand the step‑wise price schedule, the intended efficiency gains erode. Toyama’s model captures heterogeneous misperceptions, identifies their distribution, and simulates alternative pricing schemes. Empirical results reveal a 5‑7 % consumption increase after the subsidy and a pronounced bunching of usage just below the 100 kWh threshold. Most households exhibit average bias, confirming prior literature. Simulations of a utilitarian‑optimal tariff produce a flatter schedule with modest average welfare gains but generate winners and losers, whereas an inequality‑averse optimal design essentially replicates the zero‑price first tier. The findings suggest that policymakers should account for behavioral responses when designing electricity subsidies. Flatter, more transparent tariffs may improve efficiency, but distributional objectives may still justify targeted free‑electricity provisions, especially in developing economies facing energy access challenges.