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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

Listed:
  • 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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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Bensch, Gunther & Peters, Jörg, 2017. "One-off subsidies and long-run adoption – Experimental evidence on improved cooking stoves in Senegal," Discussion Papers 256217, University of Bonn, Center for Development Research (ZEF).
    2. Grimm, Michael & Lenz, Luciane & Peters, Jörg & Sievert, Maximiliane, 2016. "Demand for Off-Grid Solar Electricity: Experimental Evidence from Rwanda," IZA Discussion Papers 10427, Institute of Labor Economics (IZA).
    3. Emily Breza & Cynthia Kinnan, 2018. "Measuring the Equilibrium Impacts of Credit: Evidence from the Indian Microfinance Crisis," Working Papers id:12587, eSocialSciences.
    4. Berry, James & Fischer, Greg & Guiteras, Raymond, 2015. "Eliciting and Utilizing Willingness to Pay: Evidence from Field Trials in Northern Ghana," CEPR Discussion Papers 10703, C.E.P.R. Discussion Papers.
    5. Chakravorty, Ujjayant & Dar, Manzoor & Emerick, Kyle, 2019. "Inefficient water pricing and incentives for conservation," CEPR Discussion Papers 13572, C.E.P.R. Discussion Papers.
    6. repec:eee:jeeman:v:86:y:2017:i:c:p:1-7 is not listed on IDEAS
    7. Chakravorty, Ujjayant & Dar, Manzoor H. & Emerick, Kyle, 2019. "Ineficient water pricing and incentives for conservation," TSE Working Papers 19-997, Toulouse School of Economics (TSE).
    8. Prof Ujjayant Chakravorty & Manzoor H. Dar & Kyle Emerick, 2019. "Inefficient water pricing and incentives for conservation," CESifo Working Paper Series 7560, CESifo Group Munich.
    9. 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.
    10. repec:eee:deveco:v:135:y:2018:i:c:p:235-254 is not listed on IDEAS

    More about this item

    Keywords

    Sanitation; Microcredit; Becker-DeGroot-Marschak; Randomization inference; Decision-focused evaluation;

    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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