Delhi Electricity Subsidy: How Subsidies Spiral Out Of Control

In a news item of the Indian Express, calculations of likely cost of AAP’s planned electricity subsidy are given. The calculations suffer from the same error which lead to collapse of every Leftist boondoggle: the assumption that the behaviour of the human beings remains static. It does not.

For example the calculations are based on the assumption that consumption will remain what it is without subsidy. Whereas in the real world, whatever is priced less, is demanded more, and is wasted more.

Those who are consuming currently say 100 units, will double their consumption, because it will still cost the same to them.  Those who are consuming about say 250 units will consume their full quota of 400 units, again because total bill for them would remain the same.

Those who are currently consuming say 450 units, would try to reduce consumption to below 400 units, and become eligible for subsidy.

Therefore all calculations of subsidy burden will be off the mark. Something similar will happen in case of subsidy for water.

 

Read the news item here.