Working Paper: CEPR ID: DP14416
Authors: Robin Burgess; Michael Greenstone; Nicholas Ryan; Anant Sudarshan
Abstract: This paper seeks to explain why billions of people in developing countries either have no access to electricity or lack a reliable supply. We present evidence that these shortfalls are a consequence of electricity being treated as a right and that this sets off a vicious four-step circle. In step 1, because a social norm has developed that all deserve power independent of payment, subsidies, theft, and nonpayment are widely tolerated. In step 2, electricity distribution companies lose money with each unit of electricity sold and in total lose large sums of money. In step 3, government-owned distribution companies ration supply to limit losses by restricting access and hours of supply. In step 4, power supply is no longer governed by market forces and the link between payment and supply is severed, thus reducing customers' incentives to pay. The equilibrium outcome is uneven and sporadic access that undermines growth.
Keywords: electricity; distribution
JEL Codes: O3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Social norm that electricity is a right (L94) | Tolerance for subsidies, theft, and nonpayment (H26) |
| Social norm that electricity is a right (L94) | Financial losses for electricity distribution companies (L94) |
| Financial losses for electricity distribution companies (L94) | Rationing of electricity supply (D45) |
| Rationing of electricity supply (D45) | Unreliable access to electricity (L94) |
| Severing of the link between payment and supply (L14) | Reinforcement of social norm that electricity is a right (L94) |
| Reinforcement of social norm that electricity is a right (L94) | Low-quality, low-payment equilibrium (D59) |
| Low-quality, low-payment equilibrium (D59) | Hindered reliable access to electricity (L94) |