Willingness to Pay for Solar Lanterns: Does the Trial Period Play a Role?

Abstract

Where electricity access is limited, solar lanterns are a viable and relatively inexpensive source of basic lighting for households. However, the creation of commercially viable business models for solar lanterns is difficult because the customers are poor and make decisions under tight liquidity constraints. To understand the economics of technology adoption in the case of solar lanterns, we conduct a field experiment on willingness to pay (WTP) for solar lanterns in rural Uttar Pradesh. Applying the Becker-DeGroot-Marschak method of eliciting WTP, we evaluate the ability of a trial period and postponed payment to increase sales. We find no evidence for the effectiveness of the trial period and only weak evidence for the positive effect of postponed payment. Overall, WTP for the product among the customers is low. There is no clear evidence for concerns about the uncertain quality of the product, liquidity constraints, or present-bias. In this context, policies to subsidize very small solar lanterns would not correct a market failure, as people appear to have only a limited interest in the product.

Demand for Off-Grid Solar Electricity: Experimental Evidence from Rwanda

“…Accounting for interest rates that are typically high in rural areas shows that this increase in WTP is not enough to cover capital costs and overheads that would be associated with a credit-based financing scheme. We thereby also contribute to the literature on liquidity constraints and technology adoption of products that affect environmental quality (see, for example, Beltramo et al 2015, Devoto et al 2012, Guiteras et al 2016, Levine et al 2018, Tarozzi et al 2014, Yishay et al 2016, and Yoon et al 2016. The existing evidence suggests that in poor settings offering micro-loans or extended payment periods increase adoption, sometimes considerably.…”

Business Model Experimentation for the Circular Economy: Definition and Approaches

“…[72,73]), some studies use experimentation as a research method (e.g. [48,75]) similar to the earliest work identified [49]. Three studies use both business experimentation as an innovation case and experimentation as a research method [16,57,63].…”

“…Studies typically used the term experimentation in a rather lose fashion, not applying strict 'scientific rules' as recommended in work on experimentation as a research method [40]. Only Bashir et al [63] and Yoon et al [75] used a control group, as typical element of design of experiments as perused in the natural sciences. Aspects like randomization and a control group are typically not referred to; however, in Bocken et al [16], the lack of a control group is described as a limitation.…”

Optimal Subsidies for Development Supply Chains

“…Other contexts for subsidies include education (Schultz, 2004); electricity (Goodarzi et al, 2015); food (Peeters and Albers, 2013); housing (Gilbert, 2004); and smallholders farmers (Tang et al, 2015). As regards energy or lighting specifically, there is the question of empirically establishing willingness to pay (Yoon et al 2016), consumer adoption of alternative lighting products (Uppari et al 2017), and supply chain coordination for photovoltaic modules (Chen and Su, 2014).…”