How Do Electricity Shortages Affect Industry? Evidence from India
Hunt Allcott (),
Allan Collard-Wexler () and
Stephen O'Connell ()
No 19977, NBER Working Papers from National Bureau of Economic Research, Inc
We estimate the effects of electricity shortages on Indian manufacturers, instrumenting with supply shifts from hydroelectric power availability. We estimate that India’s average reported level of shortages reduces the average plant’s revenues and producer surplus by five to ten percent, but average productivity losses are significantly smaller because most inputs can be stored during outages. Shortages distort the plant size distribution, as there are significant economies of scale in generator costs and shortages more severely affect plants without generators. Simulations show that offering interruptible retail electricity contracts could substantially reduce the impact of shortages.
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Published as Hunt Allcott & Allan Collard-Wexler & Stephen D. O'Connell, 2016. "How Do Electricity Shortages Affect Industry? Evidence from India," American Economic Review, vol 106(3), pages 587-624.
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