Subsidies versus mental accounting nudges: Harnessing mobile payment systems to improve sanitation

Abstract

The proliferation of mobile money across developing countries has led to an increase in availability of mobile payment systems. This decreases the organizational complexity of allowing more flexible payment terms for customers. We test whether subsidies, deposit requirements, and access to a mobile money savings vehicle increase the propensity of households to purchase an improved but more expensive sanitation service. While high subsidies increase purchases of the improved service, interventions inspired by mental accounting such as deposit requirements and earmarked savings accounts do not. The option to save in earmarked accounts using mobile money caused households to substitute away from purchasing the improved service in the general market and towards purchasing it through our providers, rather than substituting away from the unimproved service. We discuss implications for mental accounting-based policies compared to more traditional subsidies.

Labelled Loans, Credit Constraints and Sanitation Investments

“…Abramovsky et al 2018, Cameron et al 2013. While its effectiveness has been shown when implemented with intense follow-up and in combination with subsidies [Pickering et al, 2015, Clasen et al, 2014, Patil et al, 2014, both approaches are very costly and can be difficult to target effectively [Lipscomb and Schechter, 2018]. We establish that sanitation micro-loans offer another viable and effective option that might complement these policies.…”

Why Do Defaults Affect Behavior? Experimental Evidence from Afghanistan

“…More recently, however, many mobile operators have begun to offer more sophisticated financial services, including interest-bearing savings accounts, insurance, and credit products. 9…”

“…13 The average tenure in our sample was 5.8 years, and all of Roshan's Afghan employees had received mobile salary payments since 2010, so this population was familiar with the mobile money system. 9 See Aker and Blumenstock (2014) for a review of recent literature, and GSMA (2017) for a comprehensive report on mobile money in developing countries. 10 Prior to our collaboration, Roshan had for a number of years aspired to create a defined contribution program for their employees.…”

Labelled Loans and Human Capital Investments

“…The evidence on the effectiveness of labelled financial instruments is mixed: studies by Benhassine et al [2015], De Arcangelis et al [2015], Dupas and Robinson [2013] and Karlan and Linden [2018] show that labelled cash transfers, remittances, and savings boxes and accounts can be effective in increasing educational investments, and savings for health emergencies. 1 However, Lipscomb and Schechter [2018] find that earmarked savings accounts and deposit requirements, both inspired by mental accounting models, do not increase demand for a more expensive sanitation service in urban Senegal, while high subsidies do so. Our study complements these by establishing that labels influence borrowing decisions, and labelled loans can be effective in increasing lumpy human capital investments.…”