The Cost of Power Outages to Heterogeneous Households

Abstract

We use a repeated dichotomous choice contingent valuation survey to elicit households’ willingness to pay to a void unannounced interruptions in electricity service. The data pose multiple econometric challenges including: correlated responses for a given household, heteroskedastic errors, and a willingness to pay distribution with large mass near zero. We address these issues by combining a gamma distribution for outage costs with a lognormally distributed scale parameter defined as a function of household characteristics, outage attributes, outage history, and random coefficients. The model is estimated through simulated maximum likelihood. We demonstrate that cost estimates are sensitive to the interaction of attributes of previously experienced and hypothetical interruptions.