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Using price incentives to bound welfare from pay as you go solar electricity

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  • Lang, Megan

Abstract

Quantifying the welfare effects of rural electrification is often hindered by non-price barriers that depress demand at the adoption margin. I study demand for pay-as-you-go (PAYGo) solar using a randomized experiment with 800 existing PAYGo customers in Kenya and Rwanda post-adoption. The experiment randomly assigns incentives that lower the effective price of usage for consumers who meet monthly purchase thresholds. Although average demand is unchanged, consumers with the highest pre-experimental demand increase their purchases by 6–7% in response to the incentive. I use these responses to estimate a lower bound on consumer surplus from PAYGo solar. I find large gains for high-demand consumers, but benefits deteriorate substantially for low-demand consumers. Combining my estimates with evidence from the literature on the environmental externalities of solar home systems, I calculate that the marginal value of public funds for PAYGo solar subsidies is at most 1.7 in Kenya and 2 in Rwanda.

Suggested Citation

  • Lang, Megan, 2026. "Using price incentives to bound welfare from pay as you go solar electricity," Journal of Public Economics, Elsevier, vol. 259(C).
    • Handle: RePEc:eee:pubeco:v:259:y:2026:i:c:s0047272726000927
    DOI: 10.1016/j.jpubeco.2026.105656
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    Keywords

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    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D6 - Microeconomics - - Welfare Economics
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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