How Do Electricity Shortages Affect Industry? Evidence from India
American Economic Review
vol. 106,
no. 3, March 2016
(pp. 587-624)
Abstract
We estimate the effects of electricity shortages on Indian manufacturers, instrumenting with supply shifts from hydroelectric power availability. We estimate that India's average reported level of shortages reduces the average plant's revenues and producer surplus by 5 to 10 percent, but average productivity losses are significantly smaller because most inputs can be stored during outages. Shortages distort the plant size distribution, as there are significant economies of scale in generator costs and shortages more severely affect plants without generators. Simulations show that offering interruptible retail electricity contracts could substantially reduce the impacts of shortages. (JEL D24, L60, L94, O13, O14, Q41)Citation
Allcott, Hunt, Allan Collard-Wexler, and Stephen D. O'Connell. 2016. "How Do Electricity Shortages Affect Industry? Evidence from India." American Economic Review, 106 (3): 587-624. DOI: 10.1257/aer.20140389Additional Materials
JEL Classification
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- L60 Industry Studies: Manufacturing: General
- L94 Electric Utilities
- O13 Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
- O14 Industrialization; Manufacturing and Service Industries; Choice of Technology
- Q41 Energy: Demand and Supply; Prices