IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v105y2015i1p35-66.html

Infrastructure Quality and the Subsidy Trap

Author

Listed:
  • Shaun McRae

Abstract

Electricity and water are often subsidized in developing countries to increase their affordability for low-income households. Ideally, such subsidies would create sufficient demand in poor neighborhoods to encourage private investment in their infrastructure. Instead, many regions receiving large subsidies have precarious distribution networks supplying users who never pay. Using a structural model of household electricity demand in Colombia, I predict the change in consumption and profits from upgrading low-quality electricity connections. I show that the existing subsidies, which provide greater transfers to areas with unreliable supply, deter investment to modernize infrastructure. Finally, I analyze alternative programs with stronger investment incentives. (JEL H23, H54, L94, L98, O12, O13)

Suggested Citation

  • Shaun McRae, 2015. "Infrastructure Quality and the Subsidy Trap," American Economic Review, American Economic Association, vol. 105(1), pages 35-66, January.
    • Handle: RePEc:aea:aecrev:v:105:y:2015:i:1:p:35-66
    Note: DOI: 10.1257/aer.20110572
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.20110572
    Download Restriction: no
    File URL: https://www.aeaweb.org/aer/app/10501/20110572_app.pdf
    Download Restriction: no
    File URL: https://www.aeaweb.org/aer/data/10501/20110572_data.zip
    Download Restriction: no
    File URL: https://www.aeaweb.org/aer/ds/10501/20110572_ds.zip
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    Other versions of this item:

    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:105:y:2015:i:1:p:35-66. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.