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

Abstract

Access 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.