@article{Manufacturing:2340,
      recid = {2340},
      author = {Nagarajan, Karthik},
      title = {The Investment and Insurance Effects of Unreliable  Electricity: Evidence from Indian Manufacturing},
      publisher = {University of Chicago},
      school = {Ph.D.},
      address = {2020-06},
      pages = {122},
      abstract = {Although unreliable electricity is a substantial burden on  producers in India, the long-run effects of electricity  shortages have received little attention. In this study, I  study the long-run output and welfare costs of electricity  shortages by examining the dynamic investment responses of  producers. Specifically, I examine two dynamic margins of  adjustment: (1) investment in productive capital, and (2)  adoption of generators as insurance against these shocks.  Using state-level power-sector data and plant-level  manufacturing data from India, I document descriptive  evidence that electricity shortage shocks depress  investment by reducing the utilization of inflexible  inputs. Furthermore, while plants that adopt generators  mitigate the investment effects of energy shocks, they  invest less in productive capital. I rationalize these  patterns using a partial equilibrium model of investment  dynamics augmented with electricity shortage shocks, costly  generator adoption, and interactions between both dynamic  margins. I estimate my model for two states - Maharashtra  and Punjab - and find that electricity shortages are  responsible for long-run value-added losses of 52% and 64%  along with producer surplus losses of 44% and 57%. The  dynamic losses are 2.5 to 3.5 times as large as the static  value-added losses of 14% and 24%. However, these long-run  losses are mostly ameliorated under a counterfactual  dynamic pricing policy that adjusts electricity prices to  prevent shortages. With dynamic prices, the long-run losses  are reduced to just 5% and 13% for value added, and 4% and  11% for producer surplus. Finally, generator adoption  undoes the ``wait-and-see'' effects of shortage  uncertainty, though the former distorts the long-run firm  size distribution.},
      url = {http://knowledge.uchicago.edu/record/2340},
      doi = {https://doi.org/10.6082/uchicago.2340},
}