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How Do Electricity Shortages Affect Industry? Evidence from India

Author

Listed:
  • Hunt Allcott
  • Allan Collard-Wexler
  • Stephen D. O'Connell

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. (JEL D24, L60, L94, O13, O14, Q41)

Suggested Citation

  • Hunt Allcott & Allan Collard-Wexler & Stephen D. O'Connell, 2016. "How Do Electricity Shortages Affect Industry? Evidence from India," American Economic Review, American Economic Association, vol. 106(3), pages 587-624, March.
  • Handle: RePEc:aea:aecrev:v:106:y:2016:i:3:p:587-624
    Note: DOI: 10.1257/aer.20140389
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    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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