Fields:
Industrial Organization and Regulation,
Energy Economics, Development Economics

Expected Graduation Date:
June 2010

Thesis Committee:

Frank Wolak (Primary):
wolak@stanford.edu

Peter Reiss:
preiss@stanford.edu

Jonathan Levin:
jdlevin@stanford.edu

Research

Infrastructure Quality and the Subsidy Trap (Job Market Paper)
Low quality infrastructure is a major barrier to economic advancement in developing countries. This paper develops an empirical framework to explain the persistence of this problem as the result of a targeted program of utility subsidies. I estimate a structural model of household demand for electricity, using customer billing data from Colombia matched to household characteristics and network outage data. I use this model to predict the change in consumption from upgrading households with low quality connections. Combining this with cost and regulatory data, I calculate the change in the utility firm's profits from the upgrade. I demonstrate that the existing program of targeted subsidies in Colombia deters investments to modernize infrastructure in areas with unreliable electricity supply. Households in these areas receive low quality service for which they do not pay, firms receive transfers from the government to tolerate areas with non-payment, and the government provides these transfers to prevent mass disconnections of non-payers. Based on the model estimates, I analyze less costly subsidy programs that provide stronger incentives for firms to upgrade neighborhoods with low quality connections. Because many developing countries face similar infrastructure challenges, this paper closes with a discussion of how these results can be applied to the design of upgrade and subsidy programs in other countries.

The Problem of Quantity-based Subsidies when Quantity is Unobserved (in progress)
Electricity and water subsidies are a major form of government assistance in many developing countries. However, households receive no direct benefit from such subsidies if they do not pay for their consumption of these services. Instead, the subsidies effectively become transfers from the government to the utility firms, creating an incentive for the firms to maximize the value of this subsidy payment. In this paper I provide evidence of such behavior by firms in a quantity-based electricity subsidy program for households in which consumption is unobserved. Using both cross-section and time-series data from households with known consumption, combined with information on the characteristics of these households, I show that the unmetered households are billed for quantities that exceed any plausible estimate of their true, unobserved consumption. This overbilling of consumption results in excessive subsidy transfers from the government to the firms.

How do Firms Exercise Unilateral Market Power? Evidence from a Bid-Based Wholesale Electricity Market
(with Frank Wolak).

Quantifying the Exercise of Unilateral Market Power in Hydro-Dominated Markets (with Frank Wolak).

Publications

"Merger Analysis in Restructured Electricity Supply Industries: The Proposed PSEG and Exelon Merger (2006)" (with Frank Wolak), in The Antitrust Revolution: Economics, Competition and Policy, John E. Kwoka and Lawrence J. White (eds), Oxford University Press, 2009.