Wealthy countries across the world consume large amounts of electricity (Gertler et al. 2016). Electricity demand in developing countries is projected to rise dramatically over the coming decades, as households become richer and purchase electric appliances (Wolfram et al. 2012). However, electricity blackouts remain ubiquitous in the developing world (Abeberese 2021, Gertler et al. 2017). Blackouts are costly, as they reduce firm productivity (Allcott et al. 2016, Cole et al. 2018), increase production costs (Steinbuks and Foster 2010, Fisher-Vanden et al. 2015), and lower household incomes (Burlando 2014).
Several factors contribute to the high frequency of blackouts in developing countries. The complex system of generators and wires that provides electricity to consumers is only as strong as its weakest link. Voltage spikes and grid disruptions occur more frequently in places where infrastructure quality is poor (McRae 2015). Low-income countries may also have too little electricity generation capacity to produce enough electricity to meet demand, as in Ghana’s Dumsor crisis (Dzansi et al. 2018). However, in India, consumers face frequent power outages despite relatively high-quality infrastructure and an ample supply of power plants. In new research (Jha et al. 2022), we identify a novel explanation for India’s power outages: when the cost of purchasing electricity rises, utilities choose to buy less from power plants, thereby restricting the amount of power that reaches consumers.