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Microcredit and willingness to pay for environmental quality: Evidence from a randomized-controlled trial of finance for sanitation in rural Cambodia

Author

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  • Ben Yishay, Ariel
  • Fraker, Andrew
  • Guiteras, Raymond
  • Palloni, Giordano
  • Shah, Neil Buddy
  • Shirrell, Stuart
  • Wang, Paul

Abstract

Low willingness to pay (WTP) for environmental quality in developing countries is a key research question in environmental economics. One explanation is that missing credit markets may suppress WTP for environmental improvements that require large up-front investments. We test the impact of microloans on WTP for hygienic latrines via a randomized controlled trial in 30 villages in rural Cambodia. We find that microcredit dramatically raises WTP for improved latrines, with 60% of households in the Financing arm willing to purchase at an unsubsidized price, relative to 25% in the Non-financing arm. Effects on latrine installation are positive but muted by several factors, including a negative peer effect: randomly induced purchases by neighbors reduce a household's probability of installing its own latrine. On methodological grounds, this paper shows that a “decision-focused evaluation” can be integrated into academic analysis to provide insight into questions of general interest.

Suggested Citation

  • Ben Yishay, Ariel & Fraker, Andrew & Guiteras, Raymond & Palloni, Giordano & Shah, Neil Buddy & Shirrell, Stuart & Wang, Paul, 2017. "Microcredit and willingness to pay for environmental quality: Evidence from a randomized-controlled trial of finance for sanitation in rural Cambodia," Journal of Environmental Economics and Management, Elsevier, vol. 86(C), pages 121-140.
  • Handle: RePEc:eee:jeeman:v:86:y:2017:i:c:p:121-140
    DOI: 10.1016/j.jeem.2016.11.004
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    Cited by:

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    3. James Berry & Greg Fischer & Raymond Guiteras, 2020. "Eliciting and Utilizing Willingness to Pay: Evidence from Field Trials in Northern Ghana," Journal of Political Economy, University of Chicago Press, vol. 128(4), pages 1436-1473.
    4. Evan Plous Kresch & Molly Lipscomb & Laura Schechter, 2020. "Externalities and Spillovers from Sanitation and Waste Management in Urban and Rural Neighborhoods," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 42(3), pages 395-420, September.
    5. Maffioli,Alessandro & Mckenzie,David J. & Ubfal,Diego Javier, 2020. "Estimating the Demand for Business Training : Evidence from Jamaica," Policy Research Working Paper Series 9415, The World Bank.
    6. Michael Grimm & Luciane Lenz & Jörg Peters & Maximiliane Sievert, 2020. "Demand for Off-Grid Solar Electricity: Experimental Evidence from Rwanda," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 7(3), pages 417-454.
    7. Emily Breza & Cynthia Kinnan, 2018. "Measuring the Equilibrium Impacts of Credit: Evidence from the Indian Microfinance Crisis," Working Papers id:12587, eSocialSciences.
    8. Chakravorty, Ujjayant & Dar, Manzoor & Emerick, Kyle, 2019. "Inefficient water pricing and incentives for conservation," CEPR Discussion Papers 13572, C.E.P.R. Discussion Papers.
    9. Cole, Shawn & Fernando, A. Nilesh & Stein, Daniel & Tobacman, Jeremy, 2020. "Field comparisons of incentive-compatible preference elicitation techniques," Journal of Economic Behavior & Organization, Elsevier, vol. 172(C), pages 33-56.
    10. Imran Chowdhury, 2019. "Social entrepreneurship, water supply, and resilience: lessons from the sanitation sector," Journal of Environmental Studies and Sciences, Springer;Association of Environmental Studies and Sciences, vol. 9(3), pages 327-339, September.
    11. Matthew Krupoff & Ahmed Mushfiq Mobarak & Alexander van Geen, 2020. "Evaluating Strategies to Reduce Arsenic Poisoning in South Asia: A View from the Social Sciences," Asian Development Review, MIT Press, vol. 37(2), pages 21-44, September.
    12. Augsburg,Britta & Caeyers,Bet & Malde,Bansi Khimji, 2019. "Can Micro-Credit Support Public Health Subsidy Programs ?," Policy Research Working Paper Series 8846, The World Bank.
    13. Augsburg,Britta & Caeyers,Bet & Giunti,Sara & Malde,Bansi Khimji & Smets,Susanna, 2019. "Labelled Loans, Credit Constraints and Sanitation Investments," Policy Research Working Paper Series 8845, The World Bank.
    14. Jack, B. Kelsey, 2017. "Environmental economics in developing countries: An introduction to the special issue," Journal of Environmental Economics and Management, Elsevier, vol. 86(C), pages 1-7.
    15. Choda, Amreen & Schoofs, Annekathrin & Verrinder, Noel, 2020. "Improving housing conditions: Labelled loans in Kenya and Uganda," Ruhr Economic Papers 878, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    16. Laura Abramovsky & Britta Augsburg & Pamela Jervis & Bansi Malde & Angus Phimister, 2019. "Complementarities in the Production of Child Health," IFS Working Papers W19/15, Institute for Fiscal Studies.
    17. Guiteras, Raymond & Levinsohn, James A & Mobarak, Ahmed Mushfiq, 2019. "Demand Estimation with Strategic Complementarities: Sanitation in Bangladesh," CEPR Discussion Papers 13498, C.E.P.R. Discussion Papers.
    18. Lipscomb, Molly & Schechter, Laura, 2018. "Subsidies versus mental accounting nudges: Harnessing mobile payment systems to improve sanitation," Journal of Development Economics, Elsevier, vol. 135(C), pages 235-254.

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    More about this item

    Keywords

    Sanitation; Microcredit; Becker-DeGroot-Marschak; Randomization inference; Decision-focused evaluation;
    All these keywords.

    JEL classification:

    • Q16 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - R&D; Agricultural Technology; Biofuels; Agricultural Extension Services
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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