Does Smart Technology Deliver? Evidence from Innovation in Energy Management


This paper studies how innovation in management impacts the quality of public services and financial performance of service providers. We examine digitalization as a form of management innovation in the infrastructure services context. Exploiting the staggered roll-out of smart meters – devices that provide two-way communication of energy use data between consumers and providers – by electric utilities across the U.S., we find that electricity losses per sale and total losses decrease by 3.4% and 4.5%, respectively. Through a series of additional tests, we conclude that the underlying mechanism through which digitalization enhances quality of service is further innovation in energy management as opposed to consumer behavior change. Utilities appear to innovate in their billing practices given the automated consumption tracking. Billing-related labor decreases substantially and revenue increases by 3% but there is no increase in prices. We do not find that consumers reduce energy use, even with the availability of programs that incentivize such behavior. Since managerial incentives vary by ownership type, we also examine how the effects differ for publicly- and privately-owned utilities. Losses decrease only for publicly-owned utilities, which are more likely to focus efforts on the social benefits of technology adoption, whereas private investor-owned utilities aim to maximize economic returns. Digitalization also appears to be progressive from an electricity reliability perspective: losses decrease by 8% in lower-income regions with no increase in sales, whereas in higher-income regions, sales increase substantially but there is no reduction in losses.

Working Paper
Zhenxuan Wang
Zhenxuan Wang
Ph.D. Candidate

My research interests lie at the intersection of environmental and energy economics, climate policy, and development economics.