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Cross-Subsidies and Government Transfers: Impacts on Electricity Service Quality in Colombia

Fan Li (), Wenche Wang () and Zelong Yi ()
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Fan Li: China Center for Special Economic Zone Research, Shenzhen University, Shenzhen 518060, China
Wenche Wang: School of Kinesiology, University of Michigan, Ann Arbor, MI 48109, USA
Zelong Yi: Department of Transportation Economics and Logistics Management, College of Economics, Shenzhen University, Shenzhen 518060, China

Sustainability, 2018, vol. 10, issue 5, 1-15

Abstract: An affordable and reliable supply of electricity service is essential to encourage sustainable social development in developing countries. Colombia uses cross-subsidies to prompt electricity usage for poor households. This raises the issue of whether charging lower prices to poor households, while boosting their consumption, induces utilities to lower the quality of service received by them. This paper uses unique databases and examines how underfunded cross-subsidies affect perceived electricity service quality across consumer groups. Results indicate that when facing financial deficits, utilities provide lower perceived service quality to subsidized consumers than to residents paying surcharges. The difference in perceived quality across consumer groups is reduced by an increase in the amount of (external) government transfers. To prompt electricity consumption by the poor, the Colombian government should fund subsidies, strengthen quality regulation, and increase the transparency and reliability of government transfers.

Keywords: cross-subsidies; government transfers; electricity; service quality (search for similar items in EconPapers)
JEL-codes: Q Q0 Q2 Q3 Q5 Q56 O13 (search for similar items in EconPapers)
Date: 2018
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