Electricity Theft, Regulatory Quality, and the Rule of Law

Abstract

This study analyzes empirical outcomes to understand the causal linkages between the rule of law, regulatory quality, and electricity theft in regulated industries. It provides a brief and explicit theoretical framework on the rule of law and its impact on electricity theft, using panel data for income groups. When the rule of law is not well established, poor governance in the regulatory process leads to larger social and economic costs associated with electricity theft. The analysis demonstrates that the rule of law has a uni-directional causality effect on transmission and distribution losses across all income groups. In the upper-middle and low-income panels, transmission and distribution losses granger cause regulatory quality, while this relationship cannot be validated in the high and lower-middle-income samples. These findings highlight the significance of the rule of law in reducing electricity theft by emphasizing regulatory quality as a transmission channel.