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How Do Electricity Shortages Affect Productivity? Evidence from India

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

We estimate the effects of electricity shortages on Indian manufacturers, instrumenting with supply shifts from hydroelectric power availability and power plant construction. We estimate that India’s average reported level of shortages reduces the average plant’s revenues and producer surplus by five to ten 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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19977.

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Date of creation: Mar 2014
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Handle: RePEc:nbr:nberwo:19977
Note: DEV EEE IO PR
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