The Consequences of Treating Electricity as a Right

In poor countries the price of electricity is low, so low that “utilities lose money on every unit of electricity that they sell.” As a result, rationing and shortages are common. Writing in the JEP, Burgess, Greenstone, Ryan and Sudarshan argue that “these shortfalls arise as a consequence of treating electricity as a right, rather than as a private good.”

How can treating electricity as a right undermine the aim of universal access to reliable electricity? We argue that there are four steps. In step 1, because electricity is seen as a right, subsidies, theft, and nonpayment are widely tolerated. Bills that do not cover costs, unpaid bills, and illegal grid connections become an accepted part of the system. In step 2, electricity utilities—also known as distribution companies—lose money with each unit of electricity sold and in total lose large sums of money. Though governments provide support, at some point, budget constraints start to bind. In step 3, distribution companies have no option but to ration supply by limiting access and restricting hours of supply. In effect, distribution companies try to sell less of their product. In step 4, power supply is no longer governed by market forces. The link between payment and supply has been severed: those evading payment receive the same quality of supply as those who pay in full. The delinking of payment and supply reinforces the view described in step 1 that electricity is a right [and leads to] a low-quality, low-payment equilibrium.

The Burgess et al. analysis coheres with my observations in India where “wire anarchy” is common (see picture). It’s obvious that electricity is being stolen but no one does anything about it because it’s considered a right and a government that did do something about it would be voted out of power.

The stolen electricity means that the utility can’t cover its costs. Government subsidies are rarely enough to satisfy the demand at a zero or low price and so the utility rations.

The consequences for electricity consumers, both rich and poor, are severe. There is only one electricity grid, and it becomes impossible to offer a higher quantity or quality of supply to those consumers who are willing and sometimes even desperate to pay for it.

Moreover,the issue is not poverty per se.

…the vast majority of customers in Bihar expect no penalty from paying a bill late, illegally hooking into the grid, wiring around a meter, or even bribing electricity officials to avoid payment. These attitudes are in stark contrast to how the same consumers view payment for private goods like cellphones. It is debatable whether cellphones are more important than electricity, but in Bihar we find that the poor spend three times more on cellphones than they do on elec-tricity (1.7 versus 0.6 percent of total expenditure).

Burgess et al. frame the issue as “treating electricity as right,” but one can can also understand this equilibrium as arising from low state capacity and corruption, in particular corruption with theft. In corruption with theft the buyer pays say a meter reader to look the other way as they tap into the line and they get a lower price for electricity net of the bribe. Corruption with theft is a strong equilibrium because buyers who do not steal have higher costs and thus are driven out of the market. In addition, corruption with theft unites the buyer and the corrupt meter reader in secrecy, since both are gaining from the transaction. As Shleifer and Vishny note:

This result suggests that the first step to reduce corruption should be to create an accounting system that prevents theft from the government.

Burgess et al. agree noting, “reforms might seek to reduce theft of electricity and nonpayment of bills” and they point to programs in India and Pakistan that allow utilities to cut off entire neighborhoods when bills aren’t paid. Needless to say, such hardball tactics require some level of trust that when the bills are paid the electricity will be provided and at higher levels of quality–this may be easier to do when there are other sources of authority such as trusted religious leaders.

In essence the problem is that the government is too beholden to electricity consumers. If the government could commit to a regime of no or few subsidies, firms would supply electricity and prices would be low and quality high. But if firms do invest in the necessary electricity infrastructure the government will break its promise and exploit the firms for temporary electoral advantage. As a result, the consumers don’t get much electricity. The government faces a time consistency problem. Independent courts would help to bind the government but those often aren’t available in developing countries. Another possibility is a conservative electricity czar who, like a conservativer central banker, doesn’t share the preferences of the government or the voters. Again that requires some independence.

In short, to ensure that everyone has access to high quality electricity the government must credibly commit that electricity is not a right.

Comments

no one does anything about it because it’s considered a right and a government that did do something about it would be voted out of power.

"Democracy" in action.

This isn't peculiar to democracies. It happens in autocratic countries, too.

+1
Even dictators are beholden to the public on some level.

This is nothing more than feigned surprise that socialism doesn't work and capitalism does for a very simple and good reason.

Vote for Bernie!

We will get everything free so we can spend our money on other stuff and the economy will explode!

Feel the burn!

In autocratic countries the government won't be voted out of power. In fact, in democracies general dissatisfaction and subsequent votes won't remove the government but instead simply change the name tags on those pulling the levers of the government machinery.

This same case of heavily subsidized utilities that are treated as a right, are a common feature of socialist government, dictatorships, etc. It's often true of water, electricity, gasoline, heating fuels, etc. So, no, it doesn't appear to have anything to do with Democracies. Alex mentioned being voted out of power, but a better phrase, might be removed from power.

If this is true, then, at least in this sphere, the celebrated democracy has no advantage over less representative forms of government. The illustrated example is of democratic India but this phenomenon is found around the world. Egypt, a democracy, is famous for rolling blackouts in Cairo. Ghana, also a democracy, deals with intermittent power outages. Of course, California, democracy on stilts, has had an occasional problem with electrical distribution, too.

"If this is true, then, at least in this sphere, the celebrated democracy has no advantage over less representative forms of government."

Well sure, this isn't news. Communism was all about giving people free (or heavily subsidized) stuff. That was kind of the point.

This gives a different take on the situation.

It's not a right like free speech it's more like apathy. People don't care if their neighbor does this stuff because the second order consequences are far enough out of sight when you live a subsistence life. Places like this also don't throw you in jail for downloading music or movies either. Is that because that too is considered a right? I don't think that's the correct term because it does not precisely reflect the mindset nor circumstances.

Remind me, why should natural monopolies like electricity not be nationalized?

Which part of the described process would nationalization change? If the government can't credibly charge enough or enforce payment, nationalization will not change this dynamic. It will still be a huge subsidy, with bad service when the limits on subsidy are reached.

There are plenty of places where private electricity is successful, and plenty of places where nationalized electricity fails to deliver. Yeah, the public/private conversation is a little different if there are inherent limits on competition, but this example hardly seems definitive.

Because governments eff things up even worse than private utilities?

PG&E immolated their customers. Hard to do worse.

It is easy for government to do better, as demonstrated by the Bonneville Power Administration. en.wikipedia.org/wiki/Bonneville_Power_Administration

Tennesse Valley Authority as well. You do on occasion get Flint Michigans, but on the whole the American government at different levels has done a good job with water, sewage, and electric.

One interesting thing about Flint is that what caused them to use water from the Flint River (temporarily until a new water source was to come on line) was a desire to get away from the notoriously over-priced, corrupt, badly-managed Detroit Water and Sewer department.

One of the positive developments from the Detroit bankruptcy was the creation of a regional water authority that allowed the suburbs to gain some control and get a new, better deal for water and sewer services.

In any case, the idea that municipal ownership is some kind of panacea for utilities is a sick joke.

The Detroit water was bad because clean water is corrupt?

Didn't the governor appointed official switch water supply because they believed free water was their right?

Ie, they didn't need to pay for water taken directly from a public waterway, ie, it's free water, while Detroit was successful in collecting payments for water from Flint and other water companies connected to Detroit water.

"The Detroit water was bad because clean water is corrupt?"

That's a very mulpian question.

But they don't treat it as a RIGHT, they generally charge enough to cover costs.

But they don't treat it as a RIGHT

That's actually been a problem, too. In addition to the corruption and mismanagement, another reason that Detroit Water and Sewer charged such high rates to paying customers is that they had so many non-paying Detroit customers whose service wasn't being shut off. This had been going on for years (at the time of the bankruptcy, there was something like $90M in uncollected bills). Since bankruptcy, non-paying customers have been turned off, but activists are continually pushing to stop the shutoffs again.

"Tennesse Valley Authority as well. "

The TVA has it's share of scandals.

"The Kingston Fossil Plant coal fly ash slurry spill was an environmental and industrial disaster that occurred on Monday December 22, 2008, when a dike ruptured at a coal ash pond at the Tennessee Valley Authority's Kingston Fossil Plant in Roane County, Tennessee, releasing 1.1 billion US gallons (4.2 million cubic metres) of coal fly ash slurry.

On January 1, 2009, the TVA disseminated a fact sheet stating that the ash is "not hazardous."

In response to a video that showed dead fish on the Clinch River, which had received runoff from the spill, TVA spokesman Gil Francis Jr. stated "in terms of toxicity, until an analysis comes in, you can't call it toxic."

The initial spill resulted in no injuries or deaths, but several of the employees of an engineering firm hired by TVA to clean up the spill developed illnesses, including brain cancer, lung cancer, and leukemia as a result of exposure to the toxic coal ash, and by the ten year anniversary of the spill, more than 40 had died."

https://en.wikipedia.org/wiki/Kingston_Fossil_Plant_coal_fly_ash_slurry_spill

BPA only generates power. The utilities that buy the power from BPA and sell it to consumers are not constrained to treat it as a consumer right.

"PG&E immolated their customers."

Government policies that forbid adequate brush clearing and customers building homes in wooded areas are more at fault.

No other private utility in the US has this problem.

"why should natural monopolies like electricity not be nationalized?"

Because government is only good at blowing up things and writing checks.

Lots of muni owned utilities in the US. While they tend to be a bit cheaper, their service is generally terrible.

Electricity is not a natural monopoly at all. The physical aspect of transmission and distribution is a natural monopoly as it would unfeasible to build multiple systems.

"The consequences of treating *Health Care* as a right"

How can treating *health care* as a right undermine the aim of universal access to reliable*health care*? We argue that there are four steps. In step 1, because *health care* is seen as a right, subsidies, theft, and nonpayment are widely tolerated. Bills that do not cover costs, unpaid bills, --- an accepted part of the system. In step 2, *hospitals/clinics* —lose money with each unit of*health care* sold and in total lose large sums of money. Though governments provide support, at some point, budget constraints start to bind. In step 3, *hospitals/clinics* have no option but to ration supply by limiting access and restricting hours of supply. In effect, *hospitals/clinics* try to sell less of their product. In step 4, *health care* is no longer governed by market forces. The link between payment and supply has been severed: those evading payment receive the same quality of supply as those who pay in full. The delinking of payment and supply reinforces the view described in step 1 that *health care* is a right [and leads to] a low-quality, low-payment equilibrium.

It would much easier to believe that if American healthcare weren't more expensive than healthcare in countries which consider it a right.

Isn't electricity also cheaper in India than the U.S.? Which part of the comment you are responding to is contradicted by the U.S. having higher prices?

Should be quite easy to believe then, as much of the expense in the US system is from treating it as a right rather than private service.

Those segments of the health care market that are treated as a private service are generally far cheaper, with greater choice and quality, than the health care industry as a whole--dentistry, eye care.

. . . and basically every elective cosmetic procedure.

Funny how the rest of the industrial world does not have that problem.

Now do college.

Why not education in general? Funny, most developed countries have no problems in making K-12 basically a right.

An easy way to determine whether your right is a negative right (legitimate) or a positive right (illegitimate) is to pretend you're marooned on a deserted island.

When you're all alone, you can say what you want, practice whatever religion you like, etc. But where's your "right" to health care? To an abortion? To electricity, water, food, etc.?

Positive rights aren't rights.

Why should we use the desert island example? "Small nomadic tribe on the savannah" would be more relevant to human nature and history.

Pretty sure you twist your ankle in one of those small nomadic tribes and the group is like "Hey, we'll do what we can. No promises though."

What about:

In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the State and district wherein the crime shall have been committed, which district shall have been previously ascertained by law, and to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him; to have compulsory process for obtaining witnesses in his favor, and to have the Assistance of Counsel for his defense.

Tough to compel witnesses on a deserted island. Does that make the 6th amendment illegitimate?

We've moved on to "small nomadic tribes." And yeah, I bet most functioning tribe adopted some version of these "rights". Of course, when the tribe from the other side of the hill attacks, all bets are off. Even Lincoln suspended Habeus Corpus.

Where does policing or national defense fit in your negative/positive right framing? Or does the guy with the biggest stick do whatever he wants?

Nobody said you had a right to have the police protect you. You don't.

Rights are abstractions which are only immanentized by enforcement. So yes, it's who has the biggest stick.

Collectively, we get a lot of benefits from convincing the young men on our team to beat up sociopaths and keep the other team from bombing us and taking our stuff, so there's your policing and national defense. But hardly a "right."

Ontologically/rationally, you probably have a right to be let alone. After that, you start imposing externalities and the rest of us start weighing costs and benefits.

"To an abortion?"
One certainly can provoke an abortion on a deserted island.

"When you're all alone, you can say what you want, practice whatever religion you like"

Yeah, but you can not have processions and pilgrimages to the Holy Land. And having a right to build nuclear plants is also fake because you can not build those as a marooned person on a deserted land. You certainly don't have a right to create computer companies or car makers. Also you clearly don't have a right to use newspapers and TV stations to spread your ideas. After all, marooned people can not do that.

You forgot flying cars and trips to Mars.

You certainly can't found a space company as a marooned person in a deserted island, hence Musk has no rights.

You can found any kind of company you'd like. I'd be interested how you'd get pregnant if alone on an island.

You have no idea.

"You can found any kind of company you'd like."

Well, if you are only interested in found it, not actually mobilize the resources it needs or own profits derived from it maybe even the Cuban government is ready to indulge you.

No deserted islands are not good models for real societies.

A fish rots from the head down. In my low country community, as is the case in most communities, the water and sewer utility is owned by the government. I can't say managed by the government: mismanaged would be a better description. Years ago, the utility was audited and, lo and behold, lots of customers weren't ever billed. Indeed, the auditor found stacks of unsent and unpaid bills. Of course, it wasn't difficult to find the head, but the head was sufficiently rotten that nothing was ever done about it. As a consequence of the billing practices, the utility was always short of funds for expansion and always over capacity. Today, the head isn't as blatant; instead, the head doles out permission to connect new construction to the already over capacity utility like a mafia boss doles out favors to his capos. During the rainy season, especially during hurricanes, the operators of the utility are often faced with a dilemma: let sewage back up in residents' homes or open the valve and dump raw sewage into the creek. Of course, the operators understand that allowing raw sewage to back up in residents' homes will get them fired so they open the valve. But they have the good judgment to open the valve at night during the outgoing tide. Out of sight, out of mind. Rotten to the core. From top down.

In the country I live now, there are more households that pay for cable tv subscriptions than pay for for electricity. Power here is extremely unreliable. Yet the government, which is generally considered authoritarian, does not thing about it, because to insist that people pay would almost certainly cause unrest. It's not just being voted out that governments fear. It's instability.

They should take a lesson from the finance world: put all bad loans in a bad bank.

So, put the customers that think electricity is a right in a low reliability distribution company that will have losses forever. Put the responsible customers on a reliable distribution company. Generators should preferably service the high reliability distribution company ;)

Your good loans are not connected by a grid of wires to your next-door neighbor's bad loans.

It's technically possible, load-shedding on the 2nd class grid, no load-shedding on the 1st class grid.

Until Bad Neighbor Bob puts up a rat's nest of overhead wires to connect to your 1st class grid.

See the top of this post for an artist's concept illustrating what such a hypothetical installation might look like.

I was thinking this as well, but run your power at 14kv or more and have a transformer at house/business. Not too many folks going to touch a 14kv line.

At least not twice.

People could theoretically put induction loops near the 14kV lines. You have to get really close (couple of inches away probably) for it to be effective.

People could theoretically put mylar balloons near the 14kV lines, if they're jealous of other people having more reliable power.

"I was thinking this as well, but run your power at 14kv or more and have a transformer at house/business. Not too many folks going to touch a 14kv line"

True. You would need a mafia or corrupt utility officials for that

Come on, they have a system in place, the caste system. The right castes can connect to the 1st class grid, the rest can connect to the 2nd class grid.

Why firms?

"The Bonneville Power Administration (BPA) is an American federal agency operating in the Pacific Northwest. BPA was created by an act of Congress in 1937 to market electric power from the Bonneville Dam located on the Columbia River and to construct facilities necessary to transmit that power. Congress has since designated Bonneville to be the marketing agent for power from all of the federally owned hydroelectric projects in the Pacific Northwest. ... The power generated on BPA's grid is sold to public utilities, private utilities, and industry on the grid. The excess is sold to other grids in Canada, California and other regions. Because BPA is a public entity, it does not make a profit on power sales or from providing transmission services."

They seem to do an excellent job delivering reliable electrical power at a low cost to their customers, who seem to feel it is their right to have low cost reliable power delivered by a federal agency.

Governments often provide good services when competing with private companies in a market. Because it is market competition (not public or private ownership per se) that is the driver of quality. There are a number of examples of this. For example, nationally owned flag airlines are competitive with private airlines.

Customers in the US may "feel it is their right" but it is not being treated as a right in the US, and none of Alex's points apply: electricity is not sold below cost, theft is not tolerated, non-payment results in having your service disconnected.

Isn't it the case that nationally owned flag airlines are generally subsidized to some extent by their countries to guarantee their ability to compete with private carriers, if they can indeed be called "private'?

Yes, but subsidization is no guarantee of quality if there's no direct competition.

"The power generated on BPA's grid is sold to public utilities, private utilities, and industry on the grid." So not down to the voting public.

I'd bet 98% of people it serves has no idea what BPA is, whether it's private or public, and could give a rat's ass if you told them.

So as not to make the theft of electricity sound like theft (too pejorative) most policy documents refer to it as "nontechnical losses."

So culture matters?

Here, the city owns the electric company. It is extremely reliable. Crews quickly work to restore power in the most awful weather conditions; you don't even have to call them. Poor people are subsidized. We are even offered boutique eco-friendly choices.

As far as I can tell, it is by far the best-run city department.

AT should come and give it a look, try to figure out how it currently defies the four immutable steps to failure that he outlines; and perhaps, where and why he sees that changing down the line ...

Will your electric company cut people off for non-payment and prosecute tampering with and stealing electricity?

Alex's point is that treating electricity as a right and allowing people to abuse the system will result in a low quality system. It doesn't particularly matter if the system is public or private, though private systems will tend to be profit oriented and therefore more cost sensitive than a public system on average.

Alex's point is clear enough; it just seems to be made without acknowledging that some people, in their infinite human variety, may show a preference for living in a society where corruption flourishes - whether you call that preference itself a right seems immaterial.

Or, if to live in a world free of corruption is a human right, it is strange it is so little-exercised.

"Or, if to live in a world free of corruption is a human right, it is strange it is so little-exercised."

Most of the Rights enumerated in the US Constitution were little exercised (and often harshly suppressed) at the time it was written.

That being said, Alex is making the case that corruption shouldn't be a Right. Not that " a world free of corruption is a human right".

Well, the lane is clear then, and it should be easy enough to address the problem, now that he's figured out that the concept of rights was the trouble.

...if people are all born with inherent "rights" to some commodities & services (like electricity & health-care)---- that would mean other people are born with inherent "duties" to provide these things ... since they don't exist in the natural world. without major human efforts.

the issue here is really property-rights and efficient economic social cooperation for general levels of standard-of-living.

Theft is always popular, but it damages and sometimes destroys the social structures of economic production.

Another poorly thought out argument on MR. What about water? Most American municipalities treat it more like a right than a commodity and rates are low set government monopolies and America has first rates tap water.

Perhaps the problem isn't treating electricity as a right but widespread Indian corruption. Garbage removal isn't a right but you still have to bribe the garbageman to do his job in many places in India.

Fair point, and that's why "water company stocks" fail on Wall Street. Also I found this AlexT claim to be factually suspect based on my knowledge of both Greece and the Philippines, where electricity is more expensive per KWh than in the USA: "In poor countries the price of electricity is low, so low that utilities lose money on every unit of electricity that they sell.”

Possibly true only for India. A brief internet search shows I may be right: https://www.worldatlas.com/articles/electricity-rates-around-the-world.html

Also I'll point out that electricity theft is common in the Philippines so they have new electric meters that are mounted about 10 meters high, and read by remote IR readers. To jimmy the meter you have to be willing to climb a pole 30 feet high and risk getting caught by the police.

In many places in the US stealing cable service is common. Has nothing to do with public vs private or it being a right.

"What about water? Most American municipalities treat it more like a right than a commodity "

No, most American water utilities will cut off water service for non-payment, and prosecute people for tampering with lines or stealing water.

"but widespread Indian corruption."

Certainly, tolerance of theft and non-payment (similar to theft) are different depending on culture. It looks like you are arguing on sematic grounds.

Alex's treating it like a right and your it's corruption seem to be the same thing with different labels.

Another conservatard thinks I wrote something I didn't. Anyways see the comments above and below for citation. US governments long ago saw water and sewer services were not commodities. Some places in America have private water utilities and they generally pay higher rates since governments subsidize water service because they treat them more like a right and less like a commodity.

So many conservatards...

Not "shocking" to note that Delhi in India has perhaps the most educated Chief Minister ( equivalent of Governor of a US State) , a graduate of the prestigious Indian Institute of Technology and free or subsidized electricity is a significant factor to his recent 3rd success in the elections. Incentives matter .

Fair point. Reminds me of a case in the USA, still 'good law' on the books, that said if a politician promises a specific amount of money in exchange for a vote, i.e., "vote for me and I'll rebate you exactly $100" it's considered political bribery not covered by the First Amendment and illegal. Of course, it's easy to get around this case law by saying "vote for me and I"ll promise to lower your taxes by an average of $100", not to mention I doubt this caselaw is enforced or necessarily good law across the USA (it was caselaw form a southern state). Not to mention if this caselaw was strictly enforced all pols would be in jail.

Bumper sticker: "Limit politicians to two terms: one in office and one in jail"

"Most American municipalities treat it more like a right "
I've never seen one that wouldn't shut off the supply if you didn't pay the bill.

Depends, as many areas have rules regarding turning off the power in the wintertime.

We do for power too, but March 1st comes around. I think you can milk it for 5 months max, then you're off. Reconnecting is costly, so it goes into grandma's name. You can only play the game for so long.

https://www.chicago.gov/city/en/depts/fin/provdrs/utility_billing/svcs/utility-bill-relief-program.html

Did you look at your link?

"Utility Billing Relief (UBR) will provide low-income residents with a reduced rate on their water, sewer, and water-sewer taxes, as well as debt relief for those who demonstrate they can manage the reduced rate bills for one year.

If I don’t successfully complete the program, will I be disconnected?
If you do not successfully complete the Utility Billing Relief Program you will be subject to the normal collection process which can include water shut-off."

I sure did. Since when do commodities get government subsidies? Or are you a conservatard unable to comprehend basic concepts?

I don't know if there are people who pay nothing at all, but my local utility has several pages' worth of programs re subsidizing the low-income, the elderly, the medically vulnerable. It says it partners with 50 agencies and churches to identify the clients - anyone on assistance - for these programs, and you may waive up to $1500/yr, which is more than my total annual electric bill.

My favorite weatherman runs a "fan drive" every summer. Has for twenty years or more. People buy fans or donate money toward the purchase of fans for low-income people, especially the elderly who could die in the heat. These are also identified by the aforementioned agencies/non-profits.

I've heard one or two people wonder, as the yearly fan collection starts up, where are all those fans? Doesn't everyone have one by now? Are they really cheap fans that only last the one summer?

There is also an externality for those who do not have access to electricity: they burn wood, dung, etc. Even if there is an electrical system, it may be unreliable: India, for example, has excess electrical capacity (per Wiki) but an unreliable distribution system, meaning that businesses, water and sewage treatment facilities, do not operate at all during parts of the day, reducing business efficiency and increasing public health risks.

Given that there are externalities, the question to ask is: can you devise a price discrimination system (low power costs for poor households), higher for business and those that can afford it, as a way to finance a better distribution system, reduce externalities, take away the incentive to tap into other wires for residential use, etc., Or, do you look at a different distribution or generation system: community solar where the locals monitor the project because they have an interest in the system. You could have a model that includes both.

+1, some kind of price discrimination model might work much better than the current Indian system.

It seems a strawman argument based on an outlier that "the government must credibly commit that electricity is not a right."

There is loads of documentation that rural electrification brings prosperity the world over. That is almost always accomplished by a government/licensed monopoly, guaranteeing both universal delivery and uniform cost.

That is a significant societal investment.

I agree with your second paragraph, but the strawman here is that this requires a 'right'.

This. You don't need a "right to electricity" to have rural electrification.

The difference is that when you have a "right" to something the commitment is open-ended and unquantifiable. Just having an electrification program allows you to set limits on what you can afford to provide.

" That is almost always accomplished by a government/licensed monopoly, guaranteeing both universal delivery and uniform cost."

Those guarantee access, they might even guarantee a broad subsidy, but they don't guarantee free electricity.

When in India I saw lots and lots of heavy-gauge wires string through tree branches. And assumed this "distribution system" was not put in place by any electric utility.

And also lots of inefficient, polluting, gasoline-powered backup generators. Of course, the owners of these don't allow others to attach heavy-duty extension cords to these: because THAT's different, THAT would be theft!

In any case, there's surely an equilibrium here, in that when one sees practically everyone helping themselves to a costly and valuable resource without paying for it, one reasonably concludes that one would be a sucker and a fool to be one of the few who do pay.

And therefore an ideal solution would cut off all (OK, almost all) the freeloaders at once, as to do so gradually can only make those forced to pay feel abused.

What's actually missing is that the monopoly is not protected "at the point of a gun."

...."an ideal solution would cut off all (OK, almost all) the freeloaders at once..."
Hard to think of an easier way of being wiped out at the next election.

Is there a parallel with how most governments avoid pricing the road network?

We could put "the networks" as analogous, but the final provision (electricity, appliances, gasoline, cars) as mostly market based the US.

Societies that subsidize gasoline too much have problems as well.

With respect to roads, there is no problem with long haul roads ending at a terminus, say city, having an end of route toll, so long as you could not avoid it by leaving earlier and jamming a city.

But, there is a problem when you have multiple jurisdictions that could tax the network at critical nodes, leading to overall inefficiency, just like the nobles in castles who taxed ships as they went up the Danube or Rhein.

Wouldn't you like to be the city or county that could impose a road tax just before a major highway interconnection? Or, maybe just the Federal government should impose tolls for the interstate system.

"Inclusion of the 2,102 miles of toll roads in the Interstate System will not affect their status as toll roads. The Federal-Aid Highway Act of 1956 permits this, although no Federal-aid funds may be used for their improvement."

The road is indirectly priced by fuel taxes. This seems the most efficient way, better than installing the infrastructure to track everyone. It also has the benefit of rewarding those with more fuel efficient vehicles.

"Is there a parallel with how most governments avoid pricing the road network?"

I think that's a different model. Roads are extremely capital intensive, but have a very low marginal cost. Electricity and water have a much higher marginal cost of usage. Furthermore, using extra free electricity and water is essentially a bonus. There's a strong incentive to use more. However, it's not free to use extra miles on the road, because vehicle costs are far higher than the cost of using the road itself.

Reference the US interstate system:
"Although expenditures for highways now exceed $126 billion a year, this amounts to less than 4.7¢ per vehicle-mile traveled."

There's a wonderful simile to learn from here if we substitute health care for electricity. Once you enact single-payer, that same four step process can be seen from all sides, in any country that has tried it. (And the best way by far for government to commit to a position that electricity, or health care, is not a right is to privatize it and allow competition, thus giving the owner both an incentive and a means to enforce compliance no matter what party is in power next year.)

And recent experience suggests a fifth step, which is now happening in the UK's NHS and in various services in China -- which is for the government to decree that "electricity is not a right" in a darker sense, cutting off service to anyone who disagrees out loud with government policies.

Treat electricity like national defense. Nationalize it and fund it entirely through taxes. The poor would automatically get subsidized power due to progressive taxation.

Metering would stop entirely, except at the neighborhood level, so that you could investigate more closely the individual households in any neighborhood that uses a wildly excessive amount of power.

Not ideal, but if you are stuck in a "step 4" bad equilibrium, there is really no way to climb out of it gradually. Collective punishment measures (cutting off entire neighborhoods) are sure to backfire.

No incentive for personal efficiency.

I seem to remember that there are places where electricity is free, and so lights and tv are left on all the time.

I mean, other than our daughter's room.

+1 I've had a few tenants over the years with subsidized gas. House is 80* in winter and if it's too hot in your bedroom, open a window.

Yes, that was tried in Venezuela. Legions of young kids were mining bit coins using "free" electricity. No one was worried about cost efficient electrical devices.

Oddly enough, the country started having brown outs.

Thinking further about my satisfactory municipally-owned energy utility (well, in every way except cleanup of the visual aspect of poles and wires - that tends to look very messy here - though obviously other things than power are strung along the poles, making it difficult, the city owns the infrastructure and does not remove the blight of disused poles, or half-cut-off poles next to new poles, or leaning poles, or poles planted in the middle of sidewalks; well, they did at my house, but that was because I made two years' worth of phone calls, and exercised the aspect of my personality that is connected with making others wish they were never born):

It is actually the parks and the police that have had to be privatized around here. Things you might consider even more in the way of a civic "right." There are parts of town that require constant police babysitting. I haven't seen a patrolman in years. This is partially a direct result of mass immigration, and an example of how quickly people forget it was not always ever thus. As a result, we've become sitting ducks over here for property crime in the past few years. The nearest policeman at any given time would be very far away. Usually, the police convey to the neighbors who will insist (not yet cottoning that they live in a new world) on leaving their vehicles out of the garage, that there is not much point in filing a report. If the perpetrator is black or white, there might be some reason to pursue the case, but when the stolen car, say, is traced to an immigrant neighborhood, it is understood by all that the investigation is at an end: no further information will be forthcoming. Though my neighbors eagerly supply their Ring videos of the Usual Suspects, I don't think it has ever resulted in somebody being collared. We are not being murdered, so we don't get police protection. I don't care that much - my husband has a certain dislike of seeing cops around so it works out okay for us, but my neighbors seem confused and continually expecting someone to care about their Amazon packages and their cars being tossed every night, or stolen if they're unlucky, or their home broken into.

In the much bigger city that is my hometown, there has not been in my lifetime, any expectation in the postwar ring neighborhood where my folks still live, that they should be served by the police force for which they are taxed. In such areas, security is privately paid for, whether that is a security firm, or the constables who are allowed to contract out, for something to do when not serving warrants.

Here in this more self-consciously "egalitarian" town, area residents weren't really familiar with the idea, but after the jillionth pointless, breathless NextDoor post about a break-in or stolen car, within a few weeks of my mentioning how it works in my hometown, the hardest hit neighborhood did indeed arrange for private patrols; and I expect my own neighborhood will follow suit before long, though hopefully I'll be gone by then.

Meanwhile, the parks department here in Boomtown is a mysterious black hole of impotence and incompetence. For some reason this is spoken of as a given. As a result, those folks interested in parks, nature, etc. open their pockets to pay for the few improvements privately, if spottily, via several non-profit foundations. There is no city-performed maintenance, no landscaping, no invasive plant removal, etc. The simple box of a pool where I sometimes swim, leaking lo these many decades, required bond money just to be resurfaced - for the first time, it turned out, since it was built in 1932.

Something can be a right but that does not justify illegal means to exercise it.

True, but it would be prudent to keep the Rights to a fairly small list of high priority items. Otherwise, it's an ever expanding and costly lists of Rights that appeal to an ever shrinking slice of the demographic.

The comparison with Mobile network is informative because it also reveals that - privatization will reduce per unit cost for those who consume most. In India or in US, the per unit mobile data cost is least for those who take the fattest package. Similar occurrence in Television broadcast market.
So by analogy, if electricity is privatized the per unit charge will be highest for those people who consume least. If water is privatized, then again, per unit charge will be highest for those who consume least.

If a commodity is luxury then this bundling matters less. For necessary commodity - like water or light at night, this outcome is extremely undesirable. In an ideal world, the per unit charge should be increasing as consumption increases - similar to progressive tax.

That's because you pay a basic fixed fee to cover your portion of the capital cost and then a marginal variable fee based upon usage.

"In an ideal world, the per unit charge should be increasing as consumption increases - similar to progressive tax."

Why is that an ideal world? If you want transfer payments then give the poor direct payments from the tax system. Trying to build "progressivity" into every single sub-system is going to be inefficient and ripe with politicization.

"In short, to ensure that everyone has access to high quality electricity the government must credibly commit that electricity is not a right."
I would argue that it's not sufficient, nor strictly necessary.

Not sufficient because there is only one distribution network, and it's not feasible to build another. Effectively that's a natural monopoly, and with high levels of corruption there is no way to manage it efficiently, neither privately nor through the state. It's not strictly necessary because you can imagine a situation where the state decides that electricity is a right, but constructs clear rules to pay part of the electric bill of the poorest families, the ones who actually could not pay for it otherwise. I admit that is suboptimal with respect to a cash transfer, but it may be politically more feasible and certainly would not lead to this kind of breakdown of the service.

Therefore I would say instead that to ensure that everyone has access to high quality electricity the government must credibly commit to fight corruption. This can be done by closing the loopholes (e.g. double-check meter reading vs consumption in the area, if electronic meter reading is not possible), or by systematically punishing corruption, starting from the worst cases to reduce political backslash. If electricity is perceived as a "right", then the government should set up an alternative arrangement to guarantee that the poor have access to it, but the utility is paid anyway, and hit hard theft from those who in fact can afford to pay.

When I lived in Honduras the Government provide the power and it went out most day for a few hours in the middle of the day.

That's when Tyler and Alex take naps.

In this problem of determining to what degree the good 'electricity' should be a public good vs a private good, it seems that we are missing some information. It feels like there are additional levels of social groups who are receiving electrical service, and these cascading groups have differing views on what their obligation is for the base contribution to the provision of the utility. Surely it is not the upper middle class mom out there paying bribes or rigging a wire tap. There are probably at least several subgroups, ie more socially complex than the rich and the poor. Although metered service is a desireable way to fund cooperative utilities, there can still be a variation in a base cost to get things running. For instance, say the residents on a country road were considering upgrading to asphalt. There are 30 homes on one side of the road and one framer on the other. Should the farmer have to pay half the total cost as a metered service would calculate, and every other home 1/60th? In practicality the farmer would more than likely try to sabotage the improvement if that were the case as he/she is not gaining any additional utility. Similarly, one of the single family owners probably would object if the farmer only paid 1/31st as the farmer has a commercial interest in their shared environment. If people are not buying into the social contract, as they appear to do for cell phones, they are most probably at odds with a perceived equity in the system.

There is a great documentary on this phenomenon in post-Soviet Georgia.
https://m.youtube.com/watch?v=rPGKgo7WkVQ

Where I live there are three electrical utilities serving different areas. One is owned by a small municipality, another is privately owned, the third is the provincial electrical utility owned by the government. They all do a pretty good job, providing power reliably and reasonably priced.

So there isn't some magic structure that makes it all work. There are many, from the union that represents the linesmen, the utility commissions who regulate the natural monopolies, to the electrical codes and qualified trades that do all the wiring of homes and buildings, to the customer base who pay their bills.

There was a real problem a few years ago with the cultivation of marijuana using high intensity lights. The product was illegal, so creative growers were connecting to power before the meters, or connecting to neighboring meters. The electrical code was changed to try to make it very difficult to do that. An interesting thing happened within the electrical code regulators; they were told that they were not subject to the Canadian charter of rights, in other words they could go into a house with no warrant if there was a suspicion of an unsafe electrical situation. Not a good thing; they were not equipped for police work, and it did not mix well with the regulatory work of checking installations and working with contractors. That illegal activity which was widely participated in by many people including the judges, regulators and politicians who were supposed to support the law was breaking down the social contract. The solution was to legalize marijuana.

So this working system requires constant attention and sometimes strong action to maintain, but in the end depends upon everyone involved to act in a way that benefits everyone. Obviously everyone involved benefits; the workers are well paid, the utilities do well, the regulators do well, the customers get reasonably priced reliable power. If power rates get too high the system starts breaking down; if no one trains linesmen, or doesn't want to pay them then the system falls apart. If the regulators have a cozy corrupt relationship with the utilities, it breaks down as well.

In Thailand we have the same sort of wiring, though there is much less theft and fraud - they just add new wire without ever removing old wire. The Thai term for it roughly translates as "sky spaghetti" https://asia.nikkei.com/Editor-s-Picks/Tea-Leaves/Bangkok-grapples-with-sky-spaghetti-in-modernization-push

Comments for this post are closed