How Do Electricity Shortages Affect Productivity? Evidence from India
We estimate the effects of electricity shortages on Indian manufacturers, instrumenting with supply shifts from hydroelectric power availability and power plant construction. 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 impacts of shortages.
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This paper was revised on February 27, 2015
Document Object Identifier (DOI): 10.3386/w19977
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