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The consequences of treating electricity as a right

Burgess, Robin, Greenstone, Michael, Ryan, Nicholas and Sudarshan, Anant (2020) The consequences of treating electricity as a right. Journal of Economic Perspectives, 34 (1). 145 - 169. ISSN 0895-3309

[img] Text (Electricity is not a right) - Accepted Version
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Identification Number: 10.1257/JEP.34.1.145

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.

Item Type: Article
Official URL: https://www.aeaweb.org/journals/jep
Additional Information: © 2020 American Economic Association
Divisions: Economics
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HB Economic Theory
JEL classification: L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L94 - Electric Utilities
L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L98 - Government Policy
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q4 - Energy > Q41 - Demand and Supply
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q4 - Energy > Q48 - Government Policy
Z - Other Special Topics > Z1 - Cultural Economics; Economic Sociology; Economic Anthropology > Z13 - Social Norms and Social Capital; Social Networks
Date Deposited: 08 Nov 2019 16:39
Last Modified: 17 Jul 2020 09:03
URI: http://eprints.lse.ac.uk/id/eprint/102466

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