This project aims to quantify how behavioural biases and market frictions affect poor households’ adoption and usage of energy efficient durables. This will be the first paper to rigorously quantify the energy efficiency gap, causally identify the mechanisms driving this gap and estimate its welfare effects, and it will do so in a high-stakes development setting.
In a recent pilot, the researchers found that energy efficient cookstoves can reduce energy spending by up to 50% or $130 per year. These savings imply an internal rate of return of 27% per month, significantly exceeding the Kenyan cost of credit. To a low-income family in Nairobi, this can facilitate a high-return investment in education, health or entrepreneurial activity. Also, the researchers found substantial scope for behavioural biases or market failures at $15, where the median WTP was much lower than the near-term expected savings.
The researchers aim to implement a Randomised Controlled Trial (RCT) in Nairobi with up to 1,000 households to, first, estimate the causal effect of ownership of an energy efficient cookstove on energy savings and to, second, disentangle any behavioural and market frictions. They will accomplish this by using a Becker-DeGroot-Marschak mechanism which both elicits household willingness to pay (WTP) and provides random variation in cookstove ownership. Before eliciting WTP, the researchers will also cross-randomise additional interventions to study three potential causes of under-adoption: inattention, present-bias and credit constraints.
The policy relevance of this study is the following:
- Energy efficiency: Over the next 35 years, energy demand in the developing world is expected to increase by more than 40%. To respond optimally, policymakers need to understand the drivers of household adoption of energy efficient durables. While the welfare implications of these policies hinge critically on whether households are adopting optimally, almost nothing is known about whether this is true.
- Household spending: In 2010, households in Sub-Saharan Africa spent 1% of GDP on firewood and charcoal. More than 80% of Kenya’s urban population depends on charcoal with families spending up to 100 KES (1 USD) daily on cooking fuels.
- Environmental benefits: Energy efficient cookstoves can reduce pollution and deforestation. In 2012, 4.3 million deaths were attributable to indoor air pollution. Furthermore, Kenya is expected to lose 65% of forest cover to charcoal production by 2030. Policymakers hoping to improve health and environmental outcomes would benefit from understanding household barriers to adopting fuel efficient cookstoves.