Quality of service predicts willingness to pay for household electricity connections in rural India

While rural electrification has been a high priority for many governments in the developing world, the factors that make individual households more likely to pay for a connection have received insufficient attention. In particular, many studies have dealt with the role of affordability of grid connections, but they have generally avoided studying the effects of service quality. Estimating the effect of quality on willingness of potential customers to pay is a difficult task because of self-selection – if quality is important, those in higher quality service areas are more likely to have a connection. Using household data from rural India, we estimate a Heckman selection model to deal with this issue and find a substantial impact of quality on willingness to pay for a connection in India. The results suggest that improving the quality of connections is critical to improving access.