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American Economic Review Vol. 106 No. 3 2016

How Do Electricity Shortages Affect Industry? Evidence from India

Hunt Allcott1; Allan Collard-Wexler2; Stephen D. O’Connell3

1 Department of Economics, New York University, 19 W. 4th Street, New York, NY 10012, NBER, and Poverty Action Lab (e-mail: ) · 2 Duke University, 230 Social Sciences Building, Durham, NC 27708, and NBER (e-mail: ) · 3 Department of Economics, City University of New York, Graduate Center, 365 5th Avenue, Room 5313, New York, NY 10016 (e-mail: )

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.

DOI
10.1257/aer.20140389
Volume
106
Issue
3
Pages
587-624
Language
en
Sources
openalex crossref bibtex:phds-export.bib

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