The Value of Continuous Power Supply for Flemish Households

No 2010/24, Working Papers from Hogeschool-Universiteit Brussel, Faculteit Economie en Management

Abstract: This paper estimates the willingness to pay of Flemish households for continuous power supply, based on a stated preference approach. The data were collected via choice experiments which were then used to estimate a set of logit models ranging from a main effects conditional logit model to random parameter logit model with interaction effects and correlated preferences. Power outages are characterized by 6 attributes: annual frequency, duration, peak or off peak, announced or unannounced, winter or summer and invoice impact. All estimates have the expected sign and are used to assess the marginal willingness to pay by Flemish households for each of these attributes. Overall, the estimates suggest that Flemish households have heterogeneous preferences regarding power outage attributes, and that a significant share of them is willing to switch to a lower reliability level if that would be compensated by a relatively small electricity bill discount. We further illustrate i) how the model estimates can be used to assess the impact on a households consumer surplus of a transition from an initial power outage state of the world (the status quo in the choice experiment) to a new state of the world, and ii) how the estimates can be used to assess the market potential of different power outage profiles if they would be offered for sale by electricity suppliers and/or distribution companies. Again, these illustrations show that some market potential exists for differentiated power outage contracts.

Keywords: Power outage; Willingness to pay; Survey; Choice experiment; Random parameter logit (search for similar items in EconPapers)
JEL-codes: C25 C93 D12 Q41 (search for similar items in EconPapers)
Pages: 35 page
Date: 2010-07
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Related works:
Journal Article: The value of continuous power supply for Flemish households (2011)
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