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Zero Energy Day: How Nationwide Blackouts Affect the Economy

Author

Listed:
  • Luis E. Gonzales

    (Central Bank of Chile)

  • Koichiro Ito

    (University of Chicago and NBER)

  • Mar Reguant

    (IAE-CSIC, Northwestern, CEPR, and NBER)

Abstract

Electricity reliability is a central challenge for the energy transition, as growing energy demand, renewable energy integration, and natural disasters increase the risk of large-scale blackouts. However, the economic impacts of large-scale blackouts remain largely unknown. Combining electricity market data with high-frequency economic transaction data from Chile, we find that economic activity declined by 35 percent on the nationwide blackout day, but half of this loss was recovered on subsequent days, highlighting the importance of intertemporal substitution. Exploiting spatial variation in blackout severity, we show that accounting for endogenous recovery is critical when estimating the marginal value of lost load.

Suggested Citation

  • Luis E. Gonzales & Koichiro Ito & Mar Reguant, 2026. "Zero Energy Day: How Nationwide Blackouts Affect the Economy," Working Papers 2026-53, Becker Friedman Institute for Research In Economics.
    • Handle: RePEc:bfi:wpaper:2026-53
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    References listed on IDEAS

    as
    1. Brown, David P. & Muehlenbachs, Lucija, 2024. "The value of electricity reliability: Evidence from battery adoption," Journal of Public Economics, Elsevier, vol. 239(C).
    2. Ama Baafra Abeberese, 2017. "Electricity Cost and Firm Performance: Evidence from India," The Review of Economics and Statistics, MIT Press, vol. 99(5), pages 839-852, December.
    3. Luis E. Gonzales & Koichiro Ito & Mar Reguant, 2023. "The Investment Effects of Market Integration: Evidence From Renewable Energy Expansion in Chile," Econometrica, Econometric Society, vol. 91(5), pages 1659-1693, September.
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    6. Paul A. Brehm & Sarah Johnston & Ross Milton, 2024. "Backup Power: Public Implications of Private Substitutes for Electric Grid Reliability," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 11(6), pages 1419-1445.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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