Infrastructure regulation and reallocations within industry: Theory and evidence from Indian firms

Juan Pablo Rud

Journal of Development Economics, 2012, vol. 99, issue 1, 116-127

Abstract: Many firms in developing countries adopt captive power generators to deal with expensive and unreliable supply of electricity. I present a model that combines upstream regulation with downstream heterogeneous firms in a monopolistic competition framework, where firms can pay a fixed cost to adopt this marginal cost-reducing device. The presence of captive power affects the market equilibrium by increasing the level of idiosyncratic productivity a firm needs to survive in the market and by re-allocating sales and profits towards the more productive, adopting firms. Additionally, the rate of adoption is shown to increase with the price of electricity, industries' electricity–intensity and with higher barriers to firm entry. The mechanisms I propose are present for a cross-section of Indian firms.

Keywords: Infrastructure; Regulation; Industrial development; Firms behavior; Industry equilibrium (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304387811001027
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:99:y:2012:i:1:p:116-127

DOI: 10.1016/j.jdeveco.2011.10.001

Access Statistics for this article

Journal of Development Economics is currently edited by M. R. Rosenzweig

More articles in Journal of Development Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().