Experimental Evidence on the Demand for and Costs of Rural Electrification

We present results from an experiment that randomized the expansion of electric grid infrastructure in rural Kenya. Electricity distribution is the canonical example of a natural monopoly. Randomized price offers show that demand for electricity connections falls sharply with price. Experimental variation in the number of connections combined with administrative cost data reveals considerable scale economies, as hypothesized. However, consumer surplus is far less than total costs at all price levels, suggesting that residential electrification may reduce social welfare. We discuss how leakage, reduced demand (due to red tape, low reliability, and credit constraints), and spillovers may impact this conclusion.

[1]  B. McCarl,et al.  Economics , 1870, The Indian medical gazette.

[2]  F. E..  Principles of Economics , 1890, Nature.

[3]  Dick Duffey,et al.  Power Generation , 1932, Transactions of the American Institute of Electrical Engineers.

[4]  W. Greene,et al.  Economies of Scale in U.S. Electric Power Generation , 1976, Journal of Political Economy.

[5]  William J. Baumol,et al.  On the Proper Cost Tests for Natural Monopoly in a Multiproduct Industry , 1977 .

[6]  G. Burgess,et al.  The Economics of Regulation and Antitrust , 1997 .

[7]  Adonis Yatchew,et al.  Scale economies in electricity distribution: a semiparametric analysis , 2000 .

[8]  P. Joskow.  Deregulating and regulatory reform in the U.S. electric power sector , 2000 .

[9]  Rebecca Stratling,et al.  Deregulation of Network Industries. What’s Next? , 2001 .

[10]  James J. Murphy,et al.  A Meta-analysis of Hypothetical Bias in Stated Preference Valuation , 2003 .

[11]  R. Reinikka,et al.  Local Capture: Evidence from a Central Government Transfer Program in Uganda , 2004 .

[12]  R. Jensen.  The Digital Provide: Information (Technology), Market Performance, and Welfare in the South Indian Fisheries Sector , 2007 .

[13]  Miriam Bruhn,et al.  In Pursuit of Balance: Randomization in Practice in Development Field Experiments , 2008 .

[14]  D. McKenzie,et al.  Are Women More Credit Constrained? Experimental Evidence on Gender and Microenterprise Returns , 2008, SSRN Electronic Journal.

[15]  Woonghee Tim Huh,et al.  The impact of geography on energy infrastructure costs , 2009 .

[16]  Shashank Mohan,et al.  National electricity planning in settings with low pre-existing grid coverage: Development of a spatial model and case study of Kenya , 2009 .

[17]  J. Aker.  Information from Markets Near and Far: Mobile Phones and Agricultural Markets in Niger , 2010 .

[18]  D. Donaldson.  Railroads of the Raj: Estimating the Impact of Transportation Infrastructure , 2010 .

[19]  Jevgenijs Steinbuks,et al.  When do firms generate? Evidence on in-house electricity supply in Africa , 2010 .

[20]  U. Deichmann,et al.  The Economics of Renewable Energy Expansion in Rural Sub-Saharan Africa , 2010 .

[21]  Esther Duflo,et al.  Happiness on Tap: Piped Water Adoption in Urban Morocco , 2011 .

[22]  Taryn Dinkelman.  The Effects of Rural Electrification on Employment: New Evidence from South Africa , 2011 .

[23]  N. Mankiw,et al.  Principles of Economics, 5th edition , 2011 .

[24]  A. Mobarak,et al.  Development Effects of Electrification: Evidence from the Geologic Placement of Hydropower Plants in Brazil , 2011 .

[25]  P. Wilner Jeanty,et al.  Willingness to pay for renewable energy: Evidence from a contingent valuation survey in Kenya , 2011 .

[26]  Edward Miguel,et al.  Reshaping Institutions: Evidence on Aid Impacts Using a Pre-Analysis Plan , 2011 .

[27]  Gregory A Petsko,et al.  Economies of scale , 2012, Genome Biology.

[28]  Dean S. Karlan,et al.  Agricultural Decisions after Relaxing Credit and Risk Constraints , 2012 .

[29]  M. Torero,et al.  Bandwagon Effects in Poor Communities Experimental Evidence from a Rural Electrification Program in Ethiopia , 2012 .

[30]  Catherine Wolfram,et al.  How Will Energy Demand Develop in the Developing World? , 2012 .

[31]  J. Hausman.  Contingent Valuation: From Dubious to Hopeless , 2012 .

[32]  A. Mobarak,et al.  Effects of Electrification: Evidence from the Topographic Placement of Hydropower plants , 2012 .

[33]  Carl T. Kitchens,et al.  Flip the Switch: The Spatial Impact of the Rural Electrification Administration 1935-1940 , 2013 .

[34]  P. Gertler,et al.  The Effect of India's Total Sanitation Campaign on Defecation Behaviors and Child Health in Rural Madhya Pradesh: A Cluster Randomized Controlled Trial , 2014, PLoS medicine.

[35]  Benjamin Faber,et al.  Trade Integration, Market Size, and Industrialization: Evidence from China's National Trunk Highway System , 2014 .

[36]  Jörg Schimmelpfennig,et al.  Modern Industrial Organization , 2014 .

[37]  Danièle Revel,et al.  Africa Energy Outlook , 2014 .

[38]  Stephen D. O'Connell,et al.  How Do Electricity Shortages Affect Industry? Evidence from India , 2014 .

[39]  Matthew Podolsky,et al.  Barriers to Electrification for "Under Grid" Households in Rural Kenya , 2014 .

[40]  Flip the Switch: The Impact of the Rural Electrification Administration 1935-1940 , 2015 .

[41]  M. Torero,et al.  Social Interaction Effects and Connection to Electricity: Experimental Evidence from Rural Ethiopia , 2015, Economic Development and Cultural Change.

[42]  Edward Miguel,et al.  Appliance Ownership and Aspirations Among Electric Grid and Home Solar Households in Rural Kenya , 2016 .

[43]  Matthew Podolsky,et al.  Electrification for “Under Grid” households in Rural Kenya , 2016 .

[44]  N. Na.  Doing Business 2016 Measuring Regulatory Quality and Efficiency , 2016 .

[45]  Kyle Emerick,et al.  Lighting Up the Last Mile: The Benefits and Costs of Extending Electricity to the Rural Poor , 2016 .

[46]  M. Torero,et al.  Household electrification and indoor air pollution , 2017 .

[47]  Louise Roche.  Out of the Darkness and Into the Light , 2018 .