Paying for Power

Developing country governments routinely attempt to collect revenue using threats they cannot systematically enforce. We study how citizens assess the credibility of such empty threats in the context of payment for electricity in Madhya Pradesh, India, where state-run utilities recovered only 60 cents per dollar of power supplied. Using two field experiments covering 30,000 households with high arrears, we show that the household response to a threat depends on the state’s choice of messenger. The first experiment randomly exposes households to reminders, threats, and enforcement action without changing incentives, state capacity, laws, or information about debt. Legal threats delivered by local linesmen – state agents with a history of ignoring non-payment – have no effect. Yet identical notices sent by registered mail, bypassing linesmen, reduce arrears by 11.4 percent among recipients, a 241 percent return-on-investment. We hypothesize that choosing compromised messengers changes household beliefs about the state’s credibility, implying dynamic effects that we test with the second experiment: a year later, we randomly mail a legal notice to previously-treated households. Past treatments affect future responses. Consumers originally visited by a linesman do not respond, while those not exposed to linesmen reduce arrears. Moreover, when we in-crease linesman credibility by requiring them to follow up on threats, this gap narrows. The experimental results are together consistent with a model in which consumers use the state’s choice of messenger to infer the threat’s credibility, and demonstrate that low-credibility state agents can render threats ine˙ective. Low-capacity governments may improve revenue collection by bypassing their agents.