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The Cost of Power Outages to Heterogeneous Households

An Application of the Mixed Gamma-Lognormal Distribution
  • David F. Layton
  • Klaus Moeltner
Chapter
Part of the The Economics of Non-Market Goods and Resources book series (ENGO, volume 6)

Abstract

We use a repeated dichotomous choice contingent valuation survey to elicit households’ willingness to pay to a void unannounced interruptions in electricity service. The data pose multiple econometric challenges including: correlated responses for a given household, heteroskedastic errors, and a willingness to pay distribution with large mass near zero. We address these issues by combining a gamma distribution for outage costs with a lognormally distributed scale parameter defined as a function of household characteristics, outage attributes, outage history, and random coefficients. The model is estimated through simulated maximum likelihood. We demonstrate that cost estimates are sensitive to the interaction of attributes of previously experienced and hypothetical interruptions.

Keywords

Power outage costs non-market valuation gamma distribution random coefficients maximum simulated likelihood 

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Copyright information

© Springer 2005

Authors and Affiliations

  • David F. Layton
    • 1
  • Klaus Moeltner
    • 2
  1. 1.Daniel J. Evans School of Public AffairsUniversity of WashingtonSeattleUSA
  2. 2.Department of Resource EconomicsUniversity of NevadaRenoUSA

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