Allocative Inefficiencies Resulting from Subsidies to Agricultural Electricity Use : An Illustrative Model
This paper provides an analytical discussion of several interconnected resource allocation problems from under-pricing of electricity used by farmers for groundwater extraction. In these situations, groundwater extraction is inefficiently high eve...
| Main Author: | |
|---|---|
| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
|
| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20120119134026 http://hdl.handle.net/10986/3240 |
| Summary: | This paper provides an analytical
discussion of several interconnected resource allocation
problems from under-pricing of electricity used by farmers
for groundwater extraction. In these situations,
groundwater extraction is inefficiently high even without
electricity under-pricing. Moreover, part of the electric
power supply intended for farmers is often diverted to other
unauthorized uses (notably illicit consumption). The paper
demonstrates that unless non-price electricity rationing
imposes severe constraints on demand, the range of resource
allocation problems includes insufficient incentives to
provide high-level service by the power utility,
insufficient incentives for farmers to install and operate
efficient equipment, and losses due to political "rent
seeking" activities to influence water allocations. It
also shows that diversion of electricity to illicit uses can
increase overall economic efficiency when this leads to less
electricity use by farmers, thus somewhat ameliorating the
problem of excessive groundwater extraction as well as the
inefficiencies related to under-pricing of electricity.
Systemic reforms for overcoming these problems may face
severe political obstacles. |
|---|