The Consequences of Treating Electricity as a Right

Marginal Revolution ^ | March 5, 2020 | Alex Tabarrok

[karpov]

In poor countries the price of electricity is low, so low that “utilities lose money on every unit of electricity that they sell.” As a result, rationing and shortages are common. Writing in the JEP, Burgess, Greenstone, Ryan and Sudarshan argue that “these shortfalls arise as a consequence of treating electricity as a right, rather than as a private good.”

The Burgess et al. analysis coheres with my observations in India where “wire anarchy” is common (see picture). It’s obvious that electricity is being stolen but no one does anything about it because it’s considered a right and a government that did do something about it would be voted out of power.

The stolen electricity means that the utility can’t cover its costs. Government subsidies are rarely enough to satisfy the demand at a zero or low price and so the utility rations.

Burgess et al. frame the issue as “treating electricity as right,” but one can can also understand this equilibrium as arising from low state capacity and corruption, in particular corruption with theft. In corruption with theft the buyer pays say a meter reader to look the other way as they tap into the line and they get a lower price for electricity net of the bribe. Corruption with theft is a strong equilibrium because buyers who do not steal have higher costs and thus are driven out of the market. In addition, corruption with theft unites the buyer and the corrupt meter reader in secrecy, since both are gaining from the transaction.

[mumblypeg]

The Green New Dealers want electricity reserved for the ultra-rich who can afford to pay the carbon tax to keep their multiple mega-mansions lit, while the third world is to be denied power plants altogether.
Anyone who burns wood to cook & heat is a polluter, too, & must be flogged & re-educated.

How is this OP helping anyone but AOC and her ilk?

[PGalt]

: )