Watt’s the Price of Keeping the Lights On? Natural
Disasters and Willingness to Pay for Reliable Electricity

Abstract: Winter Storm Uri caused widespread electricity outages across Texas in February 2021, revealing significant weaknesses in the state’s power system. The aim of this paper is to examine how experience with disaster-related electricity outages shapes individuals’ willingness to pay (WTP) for policies that improve electricity reliability, a public good likely to be under-supplied without policy intervention. The paper addresses two related questions: (1) does experiencing a disaster-related electricity outage affect WTP for policies that increase grid reliability? and (2) Do differences in outage duration experiences make individuals more or less willing to pay for such policies? Building on a model of an individual’s expenditure (WTP) function for varying levels of a public good, the study implements a discrete choice experiment embedded in a representative survey of Texas residents conducted after the storm to estimate differential valuations across policy choices and individuals. Exploiting the as-if-random variation in outage duration during Winter Storm Uri as a natural experiment, the analysis unveils substantial heterogeneity in WTP across policy interventions and across households with different outage experiences. Households that experienced longer outages exhibit smaller increases in WTP and assign greater responsibility for grid failure to government authorities and electricity producers. The findings suggest that policies to enhance grid resilience must account for heterogeneous willingness to pay, address free-riding incentives inherent in public-good provision, and strengthen institutional credibility to secure support for necessary investments.

CPP WP-01-2019

CPP WP 01-2019: Increasing Rural Electrification through Connection Campaigns

Brian Blankenship (Columbia University), Ryan Kennedy (University of Houston), Aseem Mahajan (Harvard University), Jason C. Yu Wong (Columbia University), and Johannes Urpelainen (SAIS-John Hopkins University)

Abstract: In September 2017, the Indian government launched its “Saubhagya” initiative, aimed at achieving universal rural electrification. However, there is little academic study of strategies to increase electrification rates. We argue that a key and underappreciated barrier to expanding electrification is the transaction costs that households face in applying for a connection. Before applying, households must first obtain information on the costs of an application and the requirements for submitting one. Additionally, distribution companies’ lack of capacity impedes electrification even when households seek connections. We conducted a randomized controlled trial in Uttar Pradesh, consisting of an informational campaign which provided information about the costs and procedure of applying for connections. We find that households exposed to the campaign were three times as likely to apply for a connection, and expressed lower perceptions of the cost and difficulty of applying. However, actual connection rates remained unchanged. The results suggest that transaction costs are an important barrier to electrification, but limited capacity is also an obstacle.