Scandinavian Working Papers in Economics
EfD Discussion Paper,
Environment for Development, University of Gothenburg
No 24-1: A theoretical model of utility bill payment behavior
Mary Tiana Randriamaro (), Ana Espinola-Arredondo (), David Fuente () and Joseph Cook ()
Additional contact information
Mary Tiana Randriamaro: A2F Consulting
Ana Espinola-Arredondo: School of Economic Sciences, Washington State University
David Fuente: School of the Earth, Ocean & Environment, University of South Carolina
Joseph Cook: School of Economic Sciences, Washington State University
Abstract: Utility customer nonpayment and debt is an issue in many cities in the Global South, jeopardizing utilities’ ability to recover operations and maintenance costs through tariffs and their ability to finance system expansions or improvements. We develop a two-stage game that describes the interaction between a utility and a representative household in which the utility chooses whether to disconnect a non-paying household and the household decides whether to pay their bill. The model introduces a moral cost to customers who skip payment and political pressure on utilities to avoid disconnecting a non-paying household. We show that a lower moral aversion to non-payment makes disconnection more likely. We also model the impact of changing the availability of alternative water sources that a disconnected household can access. We find that when the relative price of these sources is high, the household is more likely to pay a bill, making the threat of disconnection less likely.
Keywords: game theory; utility bill payment; water finance; utility policy
Language: English
28 pages, February 8, 2024
Full text files
EfD_DP-24-01.pdfFull text
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