Scandinavian Working Papers in Economics
Working Papers in Economics,
University of Gothenburg, Department of Economics
No 155: Does it Matter When a Power Outage Occurs? - A Choice Experiment Study on the Willingness to Pay to Avoid Power Outages
Fredrik Carlsson () and Peter Martinsson ()
Additional contact information
Fredrik Carlsson: Department of Economics, School of Economics and Commercial Law, Göteborg University, Postal: Box 640, SE 405 30 GÖTEBORG
Peter Martinsson: Department of Economics, School of Economics and Commercial Law, Göteborg University, Postal: Box 640, SE 405 30 GÖTEBORG
Abstract: Using a choice experiment survey, the marginal willingness to pay (WTP) among Swedish households for reductions in power outages is estimated. The results from the random parameter logit estimation indicate that the marginal WTP increases with the duration of the outages, and is higher if the outages occur during weekends and during winter months. The random parameter logit model allows us to estimate a sample distribution of WTP. We find a significant unobserved heterogeneity in some of the outage attributes but not all. Furthermore we show that the sample distribution of WTP does not to any large extent suffer from the problem of reverse sign of the WTP. Therefore, choosing an unconstrained normal distribution might not be as problematic as one would think. Given that households have negative welfare effects from outages, which differ in timing and duration, and are rarely compensated for them, it is important that policy makers consider these negative impacts on households utility when regulating the electricity market.
Keywords: Choice experiment; Power outages; Random parameters; Willingness to pay
21 pages, December 20, 2004
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