The Vicious Circle of Blackouts and Revenue Collection in Developing Economies: Evidence from Ghana

MacroeconomicsAs reliable electricity is needed to form and sustain successful businesses, power is critically important for economic growth, especially for developing countries in Sub-Saharan Africa. In urban areas where most residences and businesses are connected to the power grid, utilities that are hampered by revenue shortfalls must implement load shedding, or rolling blackouts, to meet rising demand. In working paper 1809, PERC Professor Steven Puller, PERC Graduate Fellow Brittany Street and co-authors Belinda Yebuah-Dwamena and James Dzansi investigate whether revenue shortfalls from low bill collection rates contribute to a negative feedback loop that results in power supply shortages and a weaker electric utility

The Vicious Circle of Blackouts and Revenue Collection in Developing Economies: Evidence from Ghana

Retirement_SavingsAccess to reliable electricity is one of the largest barriers to economic growth in developing economies. Utilities suffer from the twin challenges of quasi-fiscal deficits and the need to implement rolling blackouts during periods with supply shortages. In this paper, the authors measure a negative feedback loop between bill payment and rolling blackouts that can create a “revenue trap� for electric utilities. Using household-level data on bill payment and power outages before and after a power crisis in Ghana, the authors estimate the impact of quasi-random exposure to power outages on subsequent bill payment. This paper studies a unique feature of the power grid whereby customers in close proximity are exposed to different levels of blackouts because some are served by a feeder with critical infrastructure “down the line� and others are served by feeders that do not service essential infrastructure. Findings show that households quasi-experimentally exposed to rolling blackouts accumulate larger unpaid balances relative to households on essential feeders. This is consistent with a negative feedback loop in which decreases in power reliability induce households to pay bills at lower rates and, thus, weaken the utility’s financial viability