It’s Not Price; It’s Quality. Satisfaction and Price Fairness Perception

In developing countries, poor quality infrastructure that is highly subsidized is typically associated with populist political interference. In such a context, implementing cost-recovery tariffs, necessary to improve infrastructure services, is a political challenge. This paper examines how levels of enduser satisfaction and price fairness perception respond to different price-quality mixes of electricity services in the urban Dominican Republic. The analysis exploits a rich dataset that includes informal and formal users, as well as heterogeneity in a set of service characteristics (i.e., reliability and commercial quality). I further exploit temporal variation in exposure to service improvements and electricity subsidies to evaluate if consumer attitudes change over time. The results suggest that the marginal positive effect of improvements in service quality on satisfaction is greater than the marginal negative effects of increasing prices and eliminating subsidies combined. In this case study, I find no evidence of attitude adaptation, suggesting that favorable views of service improvements have lasting effects. Overall, the results seem to suggest that price adjustments related to electricity service improvements permanently increase customer satisfaction.