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Cross-Subsidies and Government Transfers: Impacts on Electricity Service Quality in Colombia

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  • Fan Li

    (China Center for Special Economic Zone Research, Shenzhen University, Shenzhen 518060, China)

  • Wenche Wang

    (School of Kinesiology, University of Michigan, Ann Arbor, MI 48109, USA)

  • Zelong Yi

    (Department of Transportation Economics and Logistics Management, College of Economics, Shenzhen University, Shenzhen 518060, China)

Abstract

An affordable and reliable supply of electricity service is essential to encourage sustainable social development in developing countries. Colombia uses cross-subsidies to prompt electricity usage for poor households. This raises the issue of whether charging lower prices to poor households, while boosting their consumption, induces utilities to lower the quality of service received by them. This paper uses unique databases and examines how underfunded cross-subsidies affect perceived electricity service quality across consumer groups. Results indicate that when facing financial deficits, utilities provide lower perceived service quality to subsidized consumers than to residents paying surcharges. The difference in perceived quality across consumer groups is reduced by an increase in the amount of (external) government transfers. To prompt electricity consumption by the poor, the Colombian government should fund subsidies, strengthen quality regulation, and increase the transparency and reliability of government transfers.

Suggested Citation

  • Fan Li & Wenche Wang & Zelong Yi, 2018. "Cross-Subsidies and Government Transfers: Impacts on Electricity Service Quality in Colombia," Sustainability, MDPI, vol. 10(5), pages 1-15, May.
    • Handle: RePEc:gam:jsusta:v:10:y:2018:i:5:p:1599-:d:146710
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    References listed on IDEAS

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    1. Pu, Lei & Wang, Xiuhui & Tan, Zhongfu & Wang, Huaqing & Yang, JiaCheng & Wu, Jing, 2020. "Is China's electricity price cross-subsidy policy reasonable? Comparative analysis of eastern, central, and western regions," Energy Policy, Elsevier, vol. 138(C).
    2. Jia, Zhijie & Lin, Boqiang, 2021. "The impact of removing cross subsidies in electric power industry in China: Welfare, economy, and CO2 emission," Energy Policy, Elsevier, vol. 148(PB).

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