Reliability, Appliance Choice, and Electricity Demand


I estimate a model of the household demand for electricity that includes both the short-run consumption decision and the long-run choice of the appliances that the household owns. I use a discrete factor approximation for the correlation between the unobserved components of the individual appliance choice and electricity consumption decisions. The reliability of electricity service enters demand directly through its effect on current-period consumption, and indirectly through its effect on the appliances owned by the household. I use the model to show that improvements in the reliability of electricity supply in Colombia would affect demand primarily through changes in household appliance portfolios.

Working Paper