Estimating Willingness To Pay For Reliable Electricity Supply: A Choice Experiment Study
AbstractThis research examines households’ willingness to pay (WTP) for an improved electricity service. Households’ stated WTP is estimated using the choice experiment method (CE). The data used in the estimations came from 350 in-person interviews conducted during the period 5–22 August 2008 in North Cyprus. Compensating variation (CV) estimates for a zero-outage scenario are calculated using the parameter estimates from the mixed logit (ML) model; these are 6.65 YTL (Turkish lira) per month (5.66 USD) for summer and 25.83 YTL per month (21.97 USD) for winter. In order to avoid the cost of outages, households are willing to incur a 3.6% and a 13.9% increase in their monthly electricity bill for summer and winter, respectively. The WTP per hour unserved is 0.28 YTL (0.24 USD) for summer, and 1.08 YTL (0.92 USD) for winter. A preliminary cost–benefit analysis indicates that the annualized economic benefits are approximately 16.3 million USD for the residential sector, and justify an investment in additional generation capacity of approximately 120 MW.
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Bibliographic InfoPaper provided by JDI Executive Programs in its series Development Discussion Papers with number 2013-01.
Length: 30 pages
Date of creation: Nov 2013
Date of revision:
Willingness to pay; choice experiment; electricity; outages; reliability;
Find related papers by JEL classification:
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
- L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
- Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-01-10 (All new papers)
- NEP-ARA-2014-01-10 (MENA - Middle East & North Africa)
- NEP-DCM-2014-01-10 (Discrete Choice Models)
- NEP-ENE-2014-01-10 (Energy Economics)
- NEP-REG-2014-01-10 (Regulation)
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