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It’s Not Price; It’s Quality. Satisfaction and Price Fairness Perception

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  • Raul Jimenez Mori

Abstract

In developing countries, poor quality infrastructure that is highly subsidized is typically associated with populist political interference. In such a context, implementing cost-recovery tariffs, necessary to improve infrastructure services, is a political challenge. This paper examines how levels of enduser satisfaction and price fairness perception respond to different price-quality mixes of electricity services in the urban Dominican Republic. The analysis exploits a rich dataset that includes informal and formal users, as well as heterogeneity in a set of service characteristics (i.e., reliability and commercial quality). I further exploit temporal variation in exposure to service improvements and electricity subsidies to evaluate if consumer attitudes change over time. The results suggest that the marginal positive effect of improvements in service quality on satisfaction is greater than the marginal negative effects of increasing prices and eliminating subsidies combined. In this case study, I find no evidence of attitude adaptation, suggesting that favorable views of service improvements have lasting effects. Overall, the results seem to suggest that price adjustments related to electricity service improvements permanently increase customer satisfaction.

Suggested Citation

  • Raul Jimenez Mori, 2020. "It’s Not Price; It’s Quality. Satisfaction and Price Fairness Perception," Documentos de Trabajo 17786, The Latin American and Caribbean Economic Association (LACEA).
    • Handle: RePEc:col:000518:017786
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    References listed on IDEAS

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    1. Shaun McRae, 2015. "Infrastructure Quality and the Subsidy Trap," American Economic Review, American Economic Association, vol. 105(1), pages 35-66, January.
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    6. Jeffrey B. Nugent & Malgorzata Switek, 2013. "Oil prices and life satisfaction: asymmetries between oil exporting and oil importing countries," Applied Economics, Taylor & Francis Journals, vol. 45(33), pages 4603-4628, November.
    7. Jimenez Mori, Raul Alberto, 2017. "Are Blackout Days Free of Charge?: Valuation of Individual Preferences for Improved Electricity Services," IDB Publications (Working Papers) 8424, Inter-American Development Bank.
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    Cited by:

    1. Bin Zhang & Li Sun & Mengyao Yang & Kin-Keung Lai & Bhagwat Ram, 2023. "A Robust Optimization Approach for Smart Energy Market Revenue Management," Energies, MDPI, vol. 16(19), pages 1-14, October.

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    More about this item

    Keywords

    Consumer Satisfaction; Price Fairness; Electricity Services; Electricity Prices; Quality ofElectricity Services; Subsidies.;
    All these keywords.

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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