Measuring willingness to pay for reliable electricity: Evidence from Senegal

Joshua W Deutschmann,Agnieszka Postepska,Leopold Sarr

doi:10.1016/j.worlddev.2020.105209

Joshua W Deutschmann, Agnieszka Postepska + Show 1 more

Open Access

https://doi.org/10.1016/j.worlddev.2020.105209

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Abstract

Low-quality electricity service constitutes a significant obstacle in achieving sustainable development. Governments in low-income countries and donors are increasingly seeking to invest in improving electricity service quality and reliability. Understanding households’ and firms’ willingness to pay (WTP) for quality improvements is key to designing investments in the electricity sector. In this paper, we provide new evidence on WTP for service quality improvements from a nationally-representative survey in Senegal. We find that households and firms are willing to pay a premium over current tariffs for high-quality electricity service without outages. However, WTP for marginal service improvements is significantly lower than WTP for uninterrupted service, suggesting that, for households and firms, any increase in electricity tariff must be accompanied by substantial quality improvements. We discuss the multi-round bidding game built in our data to emphasize the importance of design choices in eliciting the WTP and draw some policy implications.

Highlights

Improving access to electricity is an essential component of long-term development in low-income countries
We focus on the willingness to pay (WTP) for improved electricity service among households and firms in Senegal
If the underlying WTP distribution is significantly different in follow-up rounds relative to the distribution implied by the first-round responses, this could suggest that the results using follow-up bids are biased

Summary

Introduction

Improving access to electricity is an essential component of long-term development in low-income countries. Improved quality of service has a large impact on household incomes (Rao, 2013), perhaps larger than the impact of a low-quality grid connection (Chakravorty, Pelli, & Ural Marchand, 2014). Grid connections are one key component of improved electricity access. Experimental evidence suggests that demand for electricity access, via grid connection or solar technology, is significantly lower than the construction costs required to connect these households (Lee, Miguel, & Wolfram, 2020; Grimm, Lenz, Peters, & Sievert, 2020; Sievert & Steinbuks, 2020). Even if households do achieve grid access, impacts may be muted or accrue slowly if the use of electricity and uptake of appliances is low (Lenz, Munyehirwe, Peters, & Sievert, 2017) or requires significant household investment (Richmond & Urpelainen, 2019)

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