Abstract:

Governments make transfers not only in cash, subsidies or kind, but also by allowing the theft of vital goods like power and water. Redistribution through theft may incur efficiency costs. We estimate the social cost of theft with a randomized experiment that rolled-out smart electricity meters in the Indian state of Jammu, where 60% of power is not paid for at baseline. We find that smart metering sharply reduces theft, increasing billed consumption by 59% while reducing actual consumption by 21%. We use the experiment to estimate consumer demand and the distortion from theft. We find that the deadweight loss from theft is |0.18 for each| 1 transferred to consumers. Aggregated across India, this implies an economic cost comparable to the fiscal cost of India’s flagship transfer programs.

For information giovanna.tramontano@unibocconi.it.