Interest Groups, Veto Points, and Electricity Infrastructure Deployment

Abstract

In this article we examine the effects of interest group pressure and the structure of political institutions on infrastructure deployment by state-owned electric utilities in a panel of seventy-eight countries during the period 1970–94. We consider two factors that jointly influence the rate of infrastructure deployment: (1) the extent to which the consumer base consists of industrial consumers, which are capable of exerting discipline on political actors whose competing incentives are to construct economically inefficient “white elephants” to satisfy the demands of concentrated geographic interests, labor unions, and national engineering and construction lobbies; and (2) veto points in formal policymaking structures that constrain political actors, thereby reducing these actors' sensitivity to interest group demands. A higher fraction of industrial customers provides political actors with stronger incentives for discipline, reducing the deployment of white elephants and thus the infrastructure growth rate, ceteris paribus. Veto points reduce political actors' sensitivity to interest group demands in general and thus moderate the relationship between industrial interest group pressure and the rate of infrastructure deployment.Both authors contributed equally and list their names alphabetically on this joint work. Both authors acknowledge funding for this research from the University of California Energy Institute. Zelner acknowledges additional funding from the Lynde and Harry Bradley Foundation and the Edgar F. Kaiser Chair at the Haas School of Business, University of California, Berkeley. Henisz acknowledges additional funding from the Reginald H. Jones Center for Management Policy, Strategy, and Organization at the Wharton School, University of Pennsylvania. Thanks to Severin Borenstein, Rachel Croson, Jose de la Torre, Alexander Dyck, Tom Gilligan, Florencio Lopez-de-Silanes, Edward Mansfield, Mathew McCubbins, Will Mitchell, David Mowery, Jeffrey Nugent, Dennis Quinn, George Tsebelis, Joel Waldfogel, Oliver Williamson, and Jan Zabojnik for their comments on previous drafts. Any errors are the responsibility of the authors.