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Institutional and Regulatory Economics of Electricity Market Reforms: The Evidence From India, Pakistan, Bangladesh, Nepal and Sri Lanka Open Access

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Five South Asian countries- India, Pakistan, Bangladesh, Nepal and Sri Lanka - embarked on electricity market reforms in the 1990's. The dissertation uses the framework of New Institutional Economics to assess the effects on electricity sector performance of both observables elements of reform (i.e. privatization, unbundling, establishment of independent regulatory agencies etc.) as well as the unobservable elements (informal beliefs, habit, norms and culture of the actors involved in reforms). The first part of the dissertation - econometric analysis of the relationship between observable electricity market reform measures and performance indicators - finds that for the most part electricity market reforms in South Asia are having a positive impact on the performance of the sector. This is particularly the case for reforms that have increased private sector participation in generation and distribution and have vertically unbundled utilities into generation, transmission and distribution entities. Many of the reforms are positively correlated with higher tariffs, indicating a cost to the consumers from the reforms. The relationship between independent regulation and performance indicators , however, is not established.The second part of the dissertation - analytical narrative of the reform experiences of Gujarat and Nepal - examines the informal elements (such as beliefs, norms, culture) that motivate behavior and explains how and why reform outcomes differed in these two places. The dissertation finds that the strength of formal institutions rules and the nature of social norms and customs have a significant influence on the outcome of reforms. Aided by the strength of its formal institutional framework and more evolved social norms and customs that encouraged people to follow formal rules, reforms in the Indian state of Gujarat were a success. The weakness of the formal institutional framework and the predominance of relation-based norms and customs in Nepal that led to limited compliance with formal rules, by contrast, limited the success of power sector reforms there.Efforts to reform the electricity sector in South Asia undertaken by governments with the assistance of development agencies such as the World Bank and the Asian Development Bank have focused to a large extent on getting the content of electricity market reform measures such as unbundling, privatization, and establishment of a power market right. The analysis in this dissertation suggests that such measures will be more successful in places with relatively robust formal rule based systems. Countries that are planning to carry out significant reforms in the electricity sector will benefit from the explicit consideration of the informal norms, habits and customs of the actors that will be affected by the reforms.

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