The Effect of Information and Subsidy on Adoption of Solar Lanterns:An Application of the BDM Bidding Mechanism in Rural Ethiopia

Renewable energy sources such as solar are an alternative to provide clean lighting for many rural households in developing countries. However, transition to these lighting sources has been slow. Using the Becker-Degroot-Marschak (BDM) bidding mechanism and a randomized field experiment, this study investigated the effect of information and subsidy policy instruments on the uptake of solar lanterns. Unlike most previous studies on solar technologies, we use a more comprehensive and more transparent approach in the elicitation of willingness to pay (WTP) using the BDM method, as our random draw is from a wide range of uniformly distributed prices, drawn in front of the subjects. We found that an increase in the amount of subsidy, accounted for in the prices, increases the adoption rate. Provision of information about the private and public benefits of the solar lantern increases adoption only when it is combined with a high level of subsidies. Households with access to grid electricity are less likely to adopt and have a lower willingness to pay, while those using kerosene as a source of lighting are more likely to adopt. We also find that access to credit increases willingness to pay. The results suggest that the related UN Sustainable Development Goals (SDGs) and Sustainable Energy for All (SEforAll) goal of universal electricity access may not be achieved without subsidizing such solar lanterns.