Institutional distrust’s effect on willingness to pay for energy projects
Africa has extremely high levels of perceived corruption (source: transparency.org)
Institutional distrust is an individual's negative expectations based on observed past performance of an institution. Distrust can arise from widespread recognition of corruption of public officials, or lack of confidence in the technical capabilities of institutions to implement projects or policies.
In Africa, an estimated 25% of GDP ($148 billion) is lost every year from corruption. The question is "How does endemic distrust in institutions distort individuals' willingness to pay for public goods?"
In Ethiopia, power outages occur every eight days on average and are largely due to low water levels in hydropower reservoirs. To solve the power outage problem and satisfy growing demand for energy, the government of Ethiopia has launched a large-scale hydropower project, the Grand Ethiopian Renaissance Dam. The project investigates Ethiopians' willingness to pay for the Dam.
560 Ethiopian residents were asked to evaluate hypothetical outcomes of the Grand Ethiopian Renaissance Dam's construction and management. These outcomes included the reduction in peak and off-peak power outages; a monthly payment to finance the project; the environmental costs for soil conservation and land afforestation; and the costs of reduced availability of grazing land.
Modelling showed that if policy makers do not account for institutional distrust, they will underestimate marginal willingness-to-pay for reliable power supply. Individuals with high trust were willing to finance the dam project if they had the personal means to do so; however willingness to pay was $0 when distrust was high, regardless of income.
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