Anant Sudarshan, UChicago

Energy subsidies are popular around the world despite being inefficient on their face. Rationing energy may increase efficiency in the second- best regime given these subsidies.  We study the rationing of
electricity for farmers in Rajasthan, India, where power is a lifeline that farmers use to pump up groundwater for irrigation.  Power rationing binds on farmers, both on the intensive margin (hours of
supply are limited to six per day) and on the extensive margin (many farmers are not allowed on the grid).  The rationing policy and groundwater extraction costs together act as a shadow price on groundwater.  We use this equivalence to estimate the efficiency of the rationed power supply. Preliminary estimates suggest that efficient rationing may be even stricter than observed.