Panel Paper: The Vicious Circle of Blackouts and Revenue Collection in Developing Countries: Evidence from Ghana

Saturday, November 9, 2019
Plaza Building: Lobby Level, Director's Row J (Sheraton Denver Downtown)

*Names in bold indicate Presenter

Brittany Street, CJARS; University of Missouri and Steven L Puller, Texas A&M University

Access to reliable electricity is one of the largest barriers to economic growth in developing economies. In rural areas with low electrification rates, there have been substantial policy efforts to expand access to power. In contrast, the power challenge in urban areas of sub-Saharan Africa is quite different. Many homes and businesses are connected to the grid, however their access to power is not consistently reliable.

Policymakers are focusing attention on methods to improve the performance of electric utilities so as to promote economic growth. However, electric utilities in developing countries suffer from the twin challenges of quasi-fiscal deficits and the need to implement rolling blackouts during periods with supply shortages. Ghana's electric utility faced a power crisis beginning in 2014 that necessitated periods of rolling blackouts during which the fiscal viability of the utility was weakened. Some policymakers have conjectured a feedback loop exists whereby a utility that frequently implements rolling blackouts induces even lower bill payment rates, which necessitates even more rolling blackouts.

In this paper, we examine the extent that there exists a negative feedback loop between bill payment and rolling blackouts creating a “revenue trap” for electric utilities. Using household-level data on bill payment and power outages before and after a power crisis in Ghana, we estimate the impact of quasi-random exposure to power outages on subsequent bill payment. To do so, we exploit 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. We find 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.