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Experimental Evidence on the Demand for and Costs of Rural Electrification

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Listed:
  • Kenneth Lee
  • Edward Miguel
  • Catherine Wolfram

Abstract

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.

Suggested Citation

  • Kenneth Lee & Edward Miguel & Catherine Wolfram, 2016. "Experimental Evidence on the Demand for and Costs of Rural Electrification," NBER Working Papers 22292, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:22292
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    More about this item

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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