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Economic Development Seminar

Welfare Implications of Political Patronage in Electricity

Meera Mahadevan, PhD Talk

Thursday, September 20, 2018 4:00 pm to 5:30 pm
3240 Weill Hall

Political patronage in electricity provision is a common occurrence, with politicians favoring their voters. This benefits needy consumers, but hurts electricity providers, affecting their ability to reliably supply electricity to everyone. Using a close-election Regression Discontinuity Design (RDD), I show that actual electricity consumption, from satellite data, is higher in constituencies supporting the ruling party, but reported consumption from electricity bills is lower. I demonstrate how politicians indirectly subsidize their constituents, by allowing the manipulation of electricity bills to reflect lower consumption. This paper is the first to use a confidential dataset on the universe of geo-located household level electricity bills from a large state in India, and I exploit the rich detail in the data to highlight the mechanisms of political patronage. I estimate producer losses of $57 million, more than double any gains to consumers. To measure welfare changes, I develop a method that estimates the price elasticity of electricity demand in the presence of data manipulation, combining policy changes as instrumental variables with machine learning for model selection. My estimates are more robust than prior work that relies on satellite or year-level aggregated data, which conceals the evidence of data manipulation I show. Consistent with a model of patronage politics, I find that politicians target voters with greater influence and those who benefit more from subsidies.


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