Distributional implications of power sector reforms in the Philippines

Abstract

This paper seeks to assess the distributional implications of the power sector reforms in the Philippines to residential consumers of electricity. First, we estimate the demand for electricity, taking into consideration the difficulties that arise from block pricing of electricity. Second, we simulate the impact of power reforms in terms of increasing the prices of electricity, assuming a linear budget set, and using the elasticities from the demand equation. This exercise draws heavily from the duality in consumer theory, which allows us to recover the utility function of individuals and to assess welfare in terms of compensating variation. This paper concludes that an increase in price of electricity will result in higher welfare loss as income increases. However, welfare loss of the poorest is highest among the lower-income groups.

JEL classification: I38