How Do Electricity Shortages Affect Industry? Evidence from India

88 Pages Posted: 19 Mar 2014 Last revised: 2 Aug 2021

See all articles by Hunt Allcott

Hunt Allcott

New York University (NYU)

Allan Collard-Wexler

Duke University

Stephen D. O'Connell

Emory University

Date Written: March 2014

Abstract

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.

Suggested Citation

Allcott, Hunt and Collard-Wexler, Allan and O'Connell, Stephen D., How Do Electricity Shortages Affect Industry? Evidence from India (March 2014). NBER Working Paper No. w19977, Available at SSRN: https://ssrn.com/abstract=2411280

Hunt Allcott (Contact Author)

New York University (NYU) ( email )

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Allan Collard-Wexler

Duke University ( email )

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Stephen D. O'Connell

Emory University ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States

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