Valuation of household preferences for improved electricity services

Low-quality infrastructure services persist in developing countries, a situation that mainly affects the poorest households. Informal access is common, and public services are heavily subsidized. This paper exploits choice experiments, specifically designed for both formal and informal users, with substantial variation in the received actual quality of services, to examine whether households in each situation are willing to pay for electricity service improvements. The analysis takes place in the urban Dominican Republic, a country with one of the highest rates of electricity theft and lowest quality service in Latin America. The results strongly indicate that households value service improvements, with informal users willing to pay an average of around US$9 and formal users willing to pay an extra 22% above their current electricity bill. The estimated valuations are significantly heterogeneous across households. This variance is mainly explained by household income, satisfaction with current electricity services, time allocation preferences, and household characteristics such as family size and dwelling size. These results indicate welfare losses equivalent to over 35% of the annual direct subsidy made by the Dominican government to the utilities.