2010 Volume 3 Pages 39-49
Since 2000, the liberalization of Japan's electrical power industry's retail market has caused a significant dip in power prices. However, I believe that any further price reduction will certainly entail supply reliability loss. I measured Japanese households' preference of supply reliability against price on the basis of the prospect theory, using data from willingness to pay (WTP) if no power outages occur and willingness to accept (WTA) if power outages occur more often owing to lower prices to provide useful insights into the Japanese electrical power policy. I discovered that Japanese households prioritize reliability, provided prices remain unchanged. Their decisions were based on a condition where power outages seldom occur and were interpreted as a result of the endowment effect of the current high supply reliability or status quo bias. Therefore, to ensure the success of the institutional reform of the electrical power industry, it is imperative that Japan maintains premium reliability.
