Political pricing of electricity – Can it go with universal service provision?

Muralee Krishnan C and Santanu Gupta

Energy Policy, 2018, vol. 116, issue C, 373-381

Abstract: Political parties in India are known to use electricity prices as a tool to secure a win in the democratic election process. This article examines the setting of electricity prices from a political economy perspective. Citizens differ in their willingness to pay for electricity, and the consumer surplus and electoral uncertainty seem to influence their choices while exercising their franchise. To win, political parties must receive a majority of votes, and a party in power may try to achieve this by choosing to ignore a consumer group, either by charging a price higher than their willingness to pay or by choosing to satisfy them by charging a lower price. Two theoretical models are proposed: the first model computes the possible prices when common (perfectly correlated) electoral shocks are anticipated, while the second model computes the possible prices for independent and identically distributed electoral shocks. We test these models with available data on willingness to pay and electricity price for Agricultural, Domestic, and Industrial consumers in an Indian State by generating prices that would be charged to each of these types of consumers to maximize the chances of re-election. Actual prices seem to confirm the second model more than the first.

Keywords: Electricity prices; Electoral uncertainty; Political economy (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:116:y:2018:i:c:p:373-381

DOI: 10.1016/j.enpol.2018.02.009

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