The Consequences of Treating Electricity as a Right
Journal of Economic Perspectives
vol. 34,
no. 1, Winter 2020
(pp. 145-69)
(Complimentary)
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.Citation
Burgess, Robin, Michael Greenstone, Nicholas Ryan, and Anant Sudarshan. 2020. "The Consequences of Treating Electricity as a Right." Journal of Economic Perspectives, 34 (1): 145-69. DOI: 10.1257/jep.34.1.145Additional Materials
JEL Classification
- L94 Electric Utilities
- L98 Industry Studies: Utilities and Transportation: Government Policy
- Q41 Energy: Demand and Supply; Prices
- Q48 Energy: Government Policy
- Z13 Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification
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