Provision of Public Services and Welfare of the Poor: Learning from an Incomplete Electricity Privatization Process in Rural Peru

The incomplete privatization of the electric sector in Peru provides a unique scenario for evaluating the impact of public versus private provision. The results in this paper suggest that management of electricity firms by the private sector leads to a significant improvement in the quality of the provision of electricity. These improvements in quality and supply of electricity provision yield some efficiency gains in terms of the time allocation of the working labor force that can be directly linked to the use of electricity. Rural households under private provision of electricity had more opportunities to work in non-farm activities, and as a result, the share of time in non-farm activities increased, indicating both a substitution effect and a potential price effect through higher non-farm wages. The substitution effect implies a reduction of hours spent on farm activities in favor of non-farm activities, and the price effect implies that households will receive higher salaries and therefore will need to work fewer hours in total. As a result, the increase in time spent on non-farm activities was accompanied by a reduction of hours spent on farm activities and an increase in hours spent on leisure.