The Price of Power: Costs of Political Corruption in Indian Electricity

Abstract: Political capture of public electricity provision may benefit targeted consumers through informal subsidies. However, this causes leakages in utility revenues, inhibiting their ability to reliably supply electricity to the broader consumer base. Using a close-election regression discontinuity design, and a confidential dataset on the universe of geo-coded electricity bills from a large state in India, I show that billed electricity consumption is lower for constituencies of the winning party after an election. However, actual consumption, as measured by satellite nighttime lights, is higher for these regions. I find new evidence to explain this discrepancy -- politicians illicitly subsidize their constituents by systematically allowing the manipulation of electricity bills. To address this corruption through policy, it is important to measure the size of the welfare losses, and compute demand elasticities. I develop a method to estimate elasticities in the presence of data manipulation by leveraging exogenous variation from policy-led price changes and predictive analytics. The net deadweight loss I estimate is large enough to power 3.7 million rural households over an electoral term.