EfD Discussion Paper,
Environment for Development, University of Gothenburg

Abstract: Over a billion people lack access to electricity, instead relying on kerosene and other dirty lighting sources, while grid expansion is not expected to keep pace with population growth. Moreover, pneumonia is the leading cause of death for under-fives in the world and kerosene smoke is a significant risk factor. For-profit distribution of low-cost solar LEDs has been suggested as a solution, but adoption remains low, especially by the poorest. This study estimates demand curves for both the initial price of low-cost solar LEDs and the subsequent user fee for repeated purchases, while also estimating the impact of short-run subsidies, or a free trial period, on long-run demand. We find uptake is highly sensitive to price, with most households purchasing at zero price and none at full cost. Using unique big data on long-term usage, we show that households that received lights for free use them as much as those that paid, disproving the notion, in this context, that consumers will not use goods received for free. Finally, we find short-term subsidies for user fees actually increases long-term demand in the context of repeated purchases.

Keywords: subsidies; health; pricing; learning; energy; behavioral economics

JEL-codes: D11; D12; D83; I11; I18; O12

Language: English

35 pages, December 1, 2019

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