Research / Weiss Fund Supported ResearchNov 18, 2020

Credit and attention in the adoption of profitable energy efficient technologies in Kenya

Susanna B. Berkouwer, Joshua T. Dean

What can explain low rates of investment in technologies with high predicted returns? We study this long-standing question in the case of energy efficient cookstoves in Nairobi. Using a randomized field experiment with 1,000 households, we estimate a 300% average annual rate of return to investing in this technology, or $120 per year in fuel savings—around one month of income—in addition to significant health, environmental, and time use benefits. These effects persist more than a year after adoption. Despite this, adoption rates are low: eliciting preferences using an incentive-compatible Becker-DeGroot-Marschak mechanism, we find that average willingness-to-pay (WTP) is only $12. Rationalizing this with exponential discounting alone would require an unrealistically high discount factor of 0.88 per week. To investigate what drives this puzzling pattern, we cross-randomize access to credit with two interventions designed to increase attention to the costs and benefits of adoption. Our first main finding is that credit doubles WTP and closes the energy efficiency gap over the period of the loan. In part, this increase in demand stems from inattention to loan payments. Second, we find no evidence of inattention to energy savings: agents already appear attentive to future benefits. These results imply policy makers should focus on affordability rather than nudges or carbon taxes.