Does the payment vehicle matter for valuing improved electricity reliability? A discrete choice experiment in Ethiopia

Frequent and prolonged power outages severely impede business operations in many developing countries. Given resource constraints, estimating the value of improved electricity reliability in such contexts is crucial for justifying related investments. This analysis uses a split-sample design to examine whether business enterprises in Addis Ababa, Ethiopia, have different valuations for improved power supply reliability under two payment vehicles (electricity bill increases and tax revenue allocation). Results show that these businesses are willing to pay (WTP) an average of US$33 per year for a 1-h monthly reduction in outages and US$24 per year for one less outage per month. These amounts represent approximately 11% and 8% of the typical annual electricity bill of 10,615 Birr (US$295), respectively, highlighting that businesses place substantial value on electricity reliability. We find no significant differences in preferences or WTP estimates between the bill and tax payment vehicle sub-samples, suggesting that tax payment vehicles are as credible as bill increases in stated preference studies and that multiple mechanisms for financing power reliability investments may be feasible in practice.

Duke Scholars

Author Subhrendu K. Pattanayak Sanford School of Public Policy

Author Marc A. Jeuland Sanford School of Public Policy