Valuing the Reliability of the Electrical Power Infrastructure: A Two-stage Hedonic Approach

Abstract

The reliability of electrical power supply is amongst the conditions that inform house purchase decisions in all urban areas. Reliability depends in part on the conditions of the power generation and distribution infrastructures involved, and in part on environmental conditions. Its value to homeowners may be capitalised into the value of the house. In this paper, a hedonic pricing approach is used to estimate the capitalised value of the reliability offered by distribution infrastructures and the environmental conditions with which they interact in Phoenix, Arizona. A first stage estimates the impact of infrastructure and environmental conditions on reliability. In a second stage, the capitalised value of reliability from the marginal willingness to pay for reliability revealed by house purchase decisions is estimated and used to infer the value of both infrastructural characteristics and environmental conditions.