Smart Power Limits: Designing Shortage Mechanisms for Extreme Events

• Authors: Mar Reguant and Mayra Wagner
• Journal of Public Economics.Vol. 262, .

As shortages of essential resources become more frequent, high prices alone may fail to curb demand. We study power limits for residential electricity, which restrict household consumption rather than setting it to zero as in rolling blackouts. We show theoretically and empirically that power limits can deliver electricity savings equivalent to sizable blackouts while affecting fewer households. The mechanism works through selection of high users, creating distributional trade-offs that depend on whether limits are uniform or proportional to contracted power. This highlights the potential of smart meters to improve shortage management while preserving access to essential electricity services.