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2008-01-01 | Discussion Paper

Does it Matter When a Power Outage Occurs? - A Choice Experiment Study on the Willingness to Pay to Avoid Power Outages

Carlsson, F., and P. Martinsson. 2007. "Does it Matter when a Power Outage Occurs? – A Choice Experiment Study on the Willingness to Pay to Avoid Power Outages". Energy Economics, accepted for publication.
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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.