Welfare implications of electricity pricing and power outages in Pakistan
At the theoretical level, the existing literature on the application of marginal cost pricing is reviewed. Since it is not always possible to implement strict marginal cost pricing, the welfare implications of second best pricing given by the Ramsey pricing model are explored. The Ramsey pricing model is extended to incorporate the lifeline rates and the cots of power outages. Welfare effects of price vs. nonprice rationing are compared. On the empirical side, sector-wise electricity demand functions are estimated for the residential, industrial, commercial, and agricultural consumers in Pakistan. Ramsey numbers are derived for each sector by using the elasticity estimates from these demand functions combined with the prices and marginal cost estimates for each sector. It is determined that the current pricing policy does not follow the Ramsey pricing principles. The welfare losses resulting from divergence of prices from marginal costs are estimated. The problem of power outages in Pakistan is analyzed and its welfare costs are determined. Based on the results of this study, policy recommendations are made to bring the price of electricity in line with the cost of supplying electricity to each consumer group.
- Research Organization:
- Boston Univ., MA (USA)
- OSTI ID:
- 6793802
- Country of Publication:
- United States
- Language:
- English
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Related Subjects
290200 -- Energy Planning & Policy-- Economics & Sociology
296000* -- Energy Planning & Policy-- Electric Power
ASIA
DEVELOPING COUNTRIES
ELECTRIC POWER
ENERGY EXPENSES
INSTITUTIONAL FACTORS
OUTAGES
PAKISTAN
POWER
PRICES
RECOMMENDATIONS
SECTORAL ANALYSIS
SOCIO-ECONOMIC FACTORS