NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Experimental Evidence on the Demand for and Costs of Rural Electrification

Kenneth Lee, Edward Miguel, Catherine Wolfram

NBER Working Paper No. 22292
Issued in May 2016
NBER Program(s):Development Economics, Environment and Energy Economics, Industrial Organization, Public Economics

We present results from an experiment that randomized the expansion of electric grid infrastructure in rural Kenya. Electricity distribution is the canonical example of a natural monopoly. Randomized price offers show that demand for electricity connections falls sharply with price. Experimental variation in the number of connections combined with administrative cost data reveals considerable scale economies, as hypothesized. However, consumer surplus is far less than total costs at all price levels, suggesting that residential electrification may reduce social welfare. We discuss how leakage, reduced demand (due to red tape, low reliability, and credit constraints), and spillovers may impact this conclusion.

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Document Object Identifier (DOI): 10.3386/w22292

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