How do electricity shortages affect industry? Evidence from India

Hunt Allcott, Allan Collard-Wexler, Stephen D. O'Connell

    Research output: Contribution to journalArticle

    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.

    Original languageEnglish (US)
    Pages (from-to)587-624
    Number of pages38
    JournalAmerican Economic Review
    Volume106
    Issue number3
    DOIs
    StatePublished - Mar 2016

    ASJC Scopus subject areas

    • Economics and Econometrics

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