This work provides evidence that individuals may prefer commitment contracts to finance purchase of lumpy investments, even when a more flexible contract is available. Micro-entrepreneurs in Malawi are offered the option to purchase solar lights on two types of payments plans- either weekly installments, or a deferred lump sum payment. I measure revealed preference for these plans at differing prices, and when access to a savings technology is provided.
Micro-entrepreneurs are offered the option to purchase solar-powered devices that can be used as a light source and to charge their mobile phones. Some participants were randomly assigned to a deferred payment plan, and could begin using the light without having to make any payment for it at the time of purchase. Others are offered the lamp for purchase with payment due at the time of purchase.
Half of those who qualified for the deferred payment plan received a savings technology (lock box) to save for the solar lamp. A willingness-to-pay (WTP) exercise is administered to everyone in the deferred payment group. Importantly, the test was administered after the lock box was made available to the respondents to randomly selected respondents. The WTP exercise measures demand to pay for the lamp in installments, or as a lump sum.
Cross-cut with the lockbox intervention, respondents were randomly assigned to pay for the solar lamp either in weekly installments or in one lump sum payment. Respondents are told of their repayment plan after completing the WTP exercise.
Intervention Start Date
2017-07-01
Intervention End Date
2017-09-30
Primary Outcomes (end points)
Demand for installments plan, demand for installments plan with savings technology, purchase of solar lamp, completing payment for solar lamp, impact of solar lamp on individual, business and household outcomes.
Primary Outcomes (explanation)
Secondary Outcomes (end points)
Secondary Outcomes (explanation)
Experimental Design
The study population is divided into four groups. One group does not receive the offer to purchase the lamp and constitutes the pure control group. Of those offered the solar lamp for purchase, one group has to pay for it at the time of purchase. This group constitutes the "Cash payment" group. The others are offered the lamp for purchase on deferred payment plans. Individuals who receive the purchase offer with deferred payment receive two cross-cutting treatments. The first treatment determines access to a savings technology, and the second treatment determines frequency of repayment.
Experimental Design Details
Randomization Method
Computer randomization
Randomization Unit
Individual
Was the treatment clustered?
No
Sample size: planned number of clusters
500 individuals
Sample size: planned number of observations
500 individuals
Sample size (or number of clusters) by treatment arms