The Social Cost of Theft: Experimental Evidence from Smart Electricity Metering in India

Economists favor redistribution through lump-sum transfers, but many policies redistribute through price subsidies instead. A tolerance for theft—a subsidy down to a price to zero—is an extreme example. We estimate the social costs of theft using an experiment in India that introduced smart metering for electricity. We find that smart metering: (i) increases billed electricity consumption by 58%; (ii) increases payments for electricity by 67%; (iii) decreases actual electricity consumption by 24%. We explain these findings with a model where smart metering increases the share of electricity billed and therefore acts like an effective increase in price. In the fitted model, transferring $1 to a consumer via a tolerance for theft results in a decline in social surplus of $0.20.

Bio

Nicholas Ryan studies energy markets and environmental regulation in developing countries. Energy use enables high standards of living but rapid, energy-intensive growth has caused many environmental problems in turn. Nick’s research measures how energy use and pollution emissions respond to regulation and market incentives. His work includes empirical studies of the effect of power grid capacity on electricity prices, how firms make decisions about energy-efficiency and how environmental regulation can be designed to best abate pollution at low social cost. Recent research studies the adoption and pricing of renewable energy in developing countries.

Nick is joining Yale University as a Cowles Foundation Fellow for 2014-15 and an Assistant Professor of Economics from 2015 onwards. His research has been supported by grants from the National Science Foundation and US AID. He was a Prize Fellow in Economics at Harvard University from 2012-2014. He received a PhD in Economics from the Massachusetts Institute of Technology in 2012 and a BA in Economics summa cum laude from the University of Pennsylvania. He previously worked as a Research Associate in the Capital Markets group at the Federal Reserve Board of Governors in Washington, DC.