The norm that electricity is a right, as opposed to a private good, constrains access to energy and leads to widespread rationing in developing countries.
Many developing countries suffer from low electricity access and frequent outages that restrict economic growth. These conditions arise from two primary factors: The norm that electricity is a right guaranteed by the government and the technological constraint that non-payers cannot easily be excluded from electricity access. To fix this problem, energy distributors should consider reforming subsidies, incentivising bill payment, and using technology to facilitate excludability.
Virtually everyone in the developed world has access to 24-hour electricity, which powers everything from reading lamps to smartphones. This widespread use of electricity is a key ingredient for economic growth. A growing body of economic literature demonstrates this link: reliable electricity can boost employment (especially among women), long-run labour productivity, educational outcomes, and household income (Dinkelman, 2011; Lipscomb et al., 2013).
A recent International Growth Centre (IGC) study in Ethiopia suggests that electrification can help catalyse structural changes in village economies by increasing agricultural yields and lowering rural-urban migration rates (Fried and Lagakos, 2017). Another IGC study in Indonesia finds that grid rollout can stimulate industrial development by encouraging firm entry and exit and increasing average productivity (Kassem, 2018).
Unfortunately, many developing countries are missing this critical ingredient for growth. The poorest 25% of countries consume a negligible 1% of the electricity consumed in the United States, while their GDP is 3% of that of the United States. Thus, inequality in electricity consumption is much more pronounced than inequality in income. While all consumers in rich countries have electricity access, the number falls to 35% in the poorest countries (bottom quartile).
This brief presents a key reason for poor electricity access in the developing world: the widespread social norm that electricity is a right. It explains how this public perception ultimately translates into limited electricity access and proposes some potential policy solutions, based on work undertaken by the Energy Policy Institute at the University of Chicago (EPIC) in collaboration with the IGC in a number of developing countries (Burgess et al., 2019).
- Electricity access is seen as a right in developing countries.
Data from across the world show power priced consistently below cost and low revenue recovery. Evidence from Bihar shows that consumers believe that power non-payment or theft is unlikely to attract penalties and bigger consumers of electricity are just as likely to not pay as smaller ones. These observations are all consistent with electricity being viewed as a right, and losses being a feature of the entire market not a result of redistribution towards the poor.
- Electricity distributors incur large losses due to non-payment, compelling them to limit access and ration electricity.
Heavily subsidised tariffs, theft, and delinquent bill payments cause power utilities to lose money on every unit sold and make large losses. Distributors respond with rationing, despite sufficient capacity – causing outages and limited grid access.
- Delinking electricity supply and payment results in rationing for non-market reasons.
The lack of relationship between bill payment rates and the quality of electricity supply creates a vicious cycle of poor access to power. Instead, rationing is determined by nonmarket reasons such as political considerations, weather conditions, and public pressure, as illustrated by microdata from Bihar.
- Developing countries need innovative policy solutions.
The challenge for developing countries is to ensure that the poor receive lifeline amounts of electricity without causing markets to fail. To do this, policymakers must shift public perception on electricity from a right towards a private good, for example through: tariff reform to reduce subsidies, incentive schemes and social trust mechanisms to improve collection, and technology to make electricity excludable to non-payers.