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How Do Electricity Shortages Affect Industry? Evidence from India

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  • 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 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 impact of shortages.

Suggested Citation

  • Hunt Allcott & Allan Collard-Wexler & Stephen D. O'Connell, 2014. "How Do Electricity Shortages Affect Industry? Evidence from India," NBER Working Papers 19977, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:19977
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    Cited by:

    1. Fisher-Vanden, Karen & Mansur, Erin T. & Wang, Qiong (Juliana), 2015. "Electricity shortages and firm productivity: Evidence from China's industrial firms," Journal of Development Economics, Elsevier, vol. 114(C), pages 172-188.
    2. repec:eee:deveco:v:130:y:2018:i:c:p:173-189 is not listed on IDEAS
    3. repec:cup:endeec:v:22:y:2017:i:05:p:491-516_00 is not listed on IDEAS
    4. David Baqaee & Emmanuel Farhi, 2017. "The Macroeconomic Impact of Microeconomic Shocks: Beyond Hulten's Theorem," Working Paper 482151, Harvard University OpenScholar.
    5. Paul J. Gertler & Orie Shelef & Catherine D. Wolfram & Alan Fuchs, 2016. "The Demand for Energy-Using Assets among the World's Rising Middle Classes," American Economic Review, American Economic Association, vol. 106(6), pages 1366-1401, June.
    6. Clay, Karen & Lewis, Joshua & Severnini, Edson R., 2016. "Canary in a Coal Mine: Infant Mortality, Property Values, and Tradeoffs Associated with Mid-20th Century Air Pollution," IZA Discussion Papers 9884, Institute for the Study of Labor (IZA).
    7. repec:eee:respol:v:46:y:2017:i:5:p:939-955 is not listed on IDEAS
    8. Barron, Manuel & Torero, Maximo, 2017. "Household electrification and indoor air pollution," Journal of Environmental Economics and Management, Elsevier, vol. 86(C), pages 81-92.
    9. Geoffrey Barrows & Helene Ollivier, 2016. "Emission intensity and firm dynamics: reallocation, product mix, and technology in India," GRI Working Papers 245, Grantham Research Institute on Climate Change and the Environment.
    10. repec:eee:enepol:v:108:y:2017:i:c:p:256-270 is not listed on IDEAS
    11. Cole, Matthew A. & Elliott, Robert J.R. & Strobl, Eric, 2014. "Climate Change, Hydro-Dependency, and the African Dam Boom," World Development, Elsevier, vol. 60(C), pages 84-98.
    12. Shahbaz, Muhammad & Sarwar, Suleman & Chen, Wei & Malik, Muhammad Nasir, 2017. "Dynamics of electricity consumption, oil price and economic growth: Global perspective," Energy Policy, Elsevier, vol. 108(C), pages 256-270.
    13. Bonan, Jacopo & Pareglio, Stefano & Tavoni, Massimo, 2017. "Access to modern energy: a review of barriers, drivers and impacts," Environment and Development Economics, Cambridge University Press, vol. 22(05), pages 491-516, October.
    14. Baskaran, Thushyanthan & Min, Brian & Uppal, Yogesh, 2015. "Election cycles and electricity provision: Evidence from a quasi-experiment with Indian special elections," Journal of Public Economics, Elsevier, vol. 126(C), pages 64-73.
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    18. repec:eee:rensus:v:76:y:2017:i:c:p:9-18 is not listed on IDEAS
    19. Lamessa Tariku ABDISA, 2018. "Power Outages, its Economic Cost and Firm Performance: Evidence from Ethiopia," Departmental Working Papers 2018-01, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    20. Oseni, Musiliu O. & Pollitt, Michael G., 2015. "A firm-level analysis of outage loss differentials and self-generation: Evidence from African business enterprises," Energy Economics, Elsevier, vol. 52(PB), pages 277-286.
    21. Nava Ashraf & Edward Glaeser & Abraham Holland & Bryce Millett Steinberg, 2017. "Water, Health and Wealth," NBER Working Papers 23807, National Bureau of Economic Research, Inc.
    22. Charles D. Brummitt & Kenan Huremovic & Paolo Pin & Matthew H. Bonds & Fernando Vega-Redondo, 2017. "Contagious disruptions and complexity traps in economic development," Papers 1707.05914, arXiv.org.
    23. repec:eee:enepol:v:109:y:2017:i:c:p:659-665 is not listed on IDEAS
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    More about this item

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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