All wealthy countries consume large amounts of electricity (Gertler et al. 2016). Electricity demand in poorer countries is projected to increase 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 (Gertler et al. 2017). Blackouts are costly, reducing firm productivity (Allcott et al. 2016, Cole et al. 2018), increasing production costs (Steinbuks and Foster 2010, Fisher-Vanden et al. 2015), and lowering household income (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 struggle to meet electricity demand due to limited electricity generation capacity, 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 our new working paper (Jha, Preonas and Burlig 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.