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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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    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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