Economics of Environment and Energy

Papers

 

The Consequences of Treating Electricity as a Right

Robin Burgess, Michael Greenstone, Nicholas Ryan, and Anant Sudarshan

Winter 2020

This paper seeks to explain why billions of people in developing countries either have no access to electricity or lack a reliable supply. We present evidence that these shortfalls are a consequence of electricity being treated as a right and that this sets off a vicious four-step circle. In step 1, because a social norm has developed that all deserve power independent of payment, subsidies, theft, and nonpayment are widely tolerated. In step 2, electricity distribution companies lose money with each unit of electricity sold and in total lose large sums of money. In step 3, government-owned distribution companies ration supply to limit losses by restricting access and hours of supply. In step 4, power supply is no longer governed by market forces and the link between payment and supply is severed, thus reducing customers' incentives to pay. The equilibrium outcome is uneven and sporadic access that undermines growth.

 

Demand for Electricity on the Global Electrification Frontier

Robin Burgess, Michael Greenstone, Nicholas Ryan, and Anant Sudarshan

February 2020

Nearly a billion people, mostly in rural Africa and South Asia, do not have electricity at home. The advent of off-grid solar power means that many of these households, at the frontier of global electrification, have a choice between competing sources of electricity. This paper studies the demand for electricity with a discrete choice model wherein households choose between grid electricity, several off-grid electricity sources, and having no electricity at all. The model is estimated using a randomized experiment that varied the price of solar microgrids for a sample of villages in the state of Bihar, India, an outpost on the global electrification frontier. There are three main findings. First, households value electricity, but demand for any one electricity source is highly elastic, because several sources provide similar energy services at similar prices. Second, even in a relatively poor, rural sample, richer households greatly prefer grid electricity. Third, future growth in income will drive an increase in electrification due mainly to new grid connections, even if the cost of solar continues to fall. Our analysis suggests that off-grid solar power provides an important stop-gap technology, which fills the space between having no electricity at all and grid electricity, but that the future will run on the grid.

 

The Brazilian Amazon’s Double Reversal of Fortune

Robin Burgess, Francisco J. M. Costa, and Benjamin Olken

August 2019

We use high-resolution satellite data to determine how Amazonian deforestation changes discretely at the Brazilian international border. We document two dramatic reversals. In 2000, Brazilian pixels were 37 percent more likely to be deforested, and between 2001 and 2005 annual Brazilian deforestation was more than three times the rate observed across the border. In 2006, just after Brazil introduced policies to reduce deforestation, these differences disappear. However, from 2014, amid a period of economic crisis and deteriorating commitment to environmental regulation, Brazilian deforestation rates jump back up to near pre-reform levels. These results demonstrate the power of the state to affect whether wilderness ecosystems are conserved or exploited.

 

In Harm’s Way? Infrastructure Investments and the Persistence of Coastal Cities

Clare Balboni

November 2019

Coasts contain a disproportionate share of the world’s population, reflecting historical advantages, but environmental change threatens a reversal of coastal fortune in the coming decades as natural disasters intensify and sea levels rise. This paper considers whether large infrastructure investments should continue to favour coastal areas. I use a dynamic spatial equilibrium framework and detailed georeferenced data from Vietnam to examine this issue and find evidence that coastal favouritism has significant costs. Road investments concentrated in coastal regions between 2000 and 2010 had positive returns but would have been outperformed by allocations concentrated further inland even in the absence of sea level rise. Future inundation renders the status quo significantly less efficient. Under a central sea level rise scenario, welfare gains 72% higher could have been achieved by a foresighted allocation avoiding the most vulnerable regions. The results highlight the importance of accounting for the dynamic effects of environmental change in deciding where to allocate infrastructure today.

 

Railroads and the Demise of Famine in Colonial India

Robin Burgess and Dave Donaldson

March 2017

Whether openness to trade can be expected to reduce or exacerbate the equilibrium exposure of real income to productivity shocks remains theoretically ambiguous and empirically unclear. In this paper we exploit the expansion of railroads across India between 1861 to 1930—a setting in which agricultural technologies were rain-fed and risky, and regional famines were commonplace—to examine whether real incomes became more or less sensitive to rainfall shocks as India’s district economies were opened up to domestic and international trade. Consistent with the predictions of a Ricardian trade model with multiple regions we find that the expansion of railroads made local prices less responsive, local nominal incomes more responsive, and local real incomes less responsive to local productivity shocks. This suggests that the lowering of transportation costs via investments in transportation infrastructure played a key role in raising welfare by lessening the degree to which productivity shocks translated into real income volatility. We also find that mortality rates became significantly less responsive to rainfall shocks as districts were penetrated by railroads. This finding bolsters the view that growing trade openness helped protect Indian citizens from the negative impacts of productivity shocks and in reducing the incidence of famines.

 

Weather, Climate Change and Death in India

Robin Burgess, Olivier Deschenes, Dave Donaldson, Michael Greenstone

April 2017

This paper reveals a stark inequality in the effect of ambient temperatures on death in human populations. Using district-level daily weather and annual mortality data from 1957 to 2000, we find that hot days lead to substantial increases in mortality in rural but not urban India. Despite being far poorer, the mortality response in urban India is not dissimilar to that in the US over the same period. Looking into potential mechanisms we find that the rural death effects are driven by hot days in the growing season which reduce productivity and wages in agriculture. Consistent with a model of endogenous survival in the face of credit constraints, we also find that the expansion of bank branches into rural India helped to mitigate these effects. When coupled with a climatological model that predicts many more hot days in a typical year by the end of this century, these estimates imply considerable reductions in rural Indian, but not urban Indian or US, life expectancy ceteris paribus.