Subsidies, infrastructure quality, and economic development
Abstract/Contents
- Abstract
- Electricity and water subsidies are an important form of social assistance in developing countries. However, households receive no direct benefit from such subsidies if they do not pay for their consumption of these services. Instead, the subsidies effectively become transfers from the government to the utility firms, creating an incentive for the firms to maximize the value of this subsidy payment. In Chapter 2 I provide evidence of such behavior by firms in a quantity-based electricity subsidy program for households in which consumption is unobserved. Using billing data and household characteristics, I show that unmetered households are billed for quantities that exceed any plausible estimate of their true, unobserved consumption. I estimate that this overbilling results in additional transfers from the government to the firm of nearly one sixth of total government expenditure on electricity subsidies. In Chapter 3 I develop an empirical framework to explain the persistence of unreliable infrastructure as the result of this targeted program of utility subsidies. I estimate a structural model of household demand for electricity, using customer billing data from Colombia matched to household characteristics and network outage data. I use this model to predict the change in consumption from upgrading households with low quality connections. Combining this with cost and regulatory data, I calculate the change in the utility firm's profits from the upgrade. I demonstrate that the existing program of targeted subsidies in Colombia deters investments to modernize infrastructure in areas with unreliable electricity supply. Households in these areas receive low quality service for which they do not pay, firms receive transfers from the government to tolerate areas with non-payment, and the government provides these transfers to prevent mass disconnections of non-payers. Based on the model estimates, I analyze less costly subsidy programs that provide stronger incentives for firms to upgrade neighborhoods with low-quality connections. In Chapter 4 I estimate a model of the household demand for electricity that includes both the short-run consumption decision, as in Chapter 3, and the long-run choice of the appliances that the household owns. I use a discrete factor approximation for the correlation between the unobserved components of the individual appliance choice and electricity consumption decisions. The reliability of electricity service enters demand directly through its effect on current-period consumption, and indirectly through its effect on the appliances owned by the household. I use the model to show that reliability improvements affect demand primarily through changes in the household's appliance portfolio.
Description
| Type of resource | text |
|---|---|
| Form | electronic; electronic resource; remote |
| Extent | 1 online resource. |
| Publication date | 2010 |
| Issuance | monographic |
| Language | English |
Creators/Contributors
| Associated with | McRae, Shaun David |
|---|---|
| Associated with | Stanford University, Department of Economics |
| Primary advisor | Wolak, Frank A |
| Thesis advisor | Wolak, Frank A |
| Thesis advisor | Levin, Jonathan D. (Jonathan David), 1972- |
| Thesis advisor | Reiss, Peter C. (Peter Clemens) |
| Advisor | Levin, Jonathan D. (Jonathan David), 1972- |
| Advisor | Reiss, Peter C. (Peter Clemens) |
Subjects
| Genre | Theses |
|---|
Bibliographic information
| Statement of responsibility | Shaun David McRae. |
|---|---|
| Note | Submitted to the Department of Economics. |
| Thesis | Thesis (Ph.D.)--Stanford University, 2010. |
| Location | electronic resource |
Access conditions
- Copyright
- © 2010 by Shaun David McRae
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