Optimal Pricing Policy when Consumers Form Habits: The Case of Piped Water in Vietnam

Last registered on October 15, 2020

Pre-Trial

Trial Information

General Information

Title
Optimal Pricing Policy when Consumers Form Habits: The Case of Piped Water in Vietnam
RCT ID
AEARCTR-0006589
Initial registration date
October 14, 2020

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
October 15, 2020, 12:36 PM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

Region

Primary Investigator

Affiliation
world bank

Other Primary Investigator(s)

PI Affiliation
world bank

Additional Trial Information

Status
Completed
Start date
2015-07-01
End date
2018-06-01
Secondary IDs
Abstract
We ran a two-and-a-half year field experiment in a commune in the Red River Delta Region served by a single water utility. About 1,500 households connected to piped water were randomly divided into three groups. We then rolled out a price subsidy scheme and collect monthly information on water consumption use.

We use these data to estimate a dynamic structural model of water demand with habit formation. Under our maintained assumption that consumers do not internalize the effect of their future habits in deciding on their current piped water usage, consumption depends only on the current price and on past usage. Our experiment, by generating random variation in price, not only allows us to identify the (short-run) price elasticity of piped water demand, but also delivers valid instruments for estimating the effect of past consumption on current consumption and, by extension, the effect of current consumption on future consumption. With these preference parameter estimates, we can compute both ex-ante and ex-post willingness-to-pay as well as short-run and long-run price elasticities of demand.

We numerically solve for the optimal pricing scheme given consumer preferences as well as information on fixed investment and operating costs provided to us by the water utility.
External Link(s)

Registration Citation

Citation
Do, Quy-Toan and Hanan Jacoby. 2020. "Optimal Pricing Policy when Consumers Form Habits: The Case of Piped Water in Vietnam." AEA RCT Registry. October 15. https://doi.org/10.1257/rct.6589
Experimental Details

Interventions

Intervention(s)
Prior to the price randomization, starting in July 2015, we `linearized' the water tariff schedule. At the time, the official schedule had three blocks: For consumption below 10 m3, the price was VND5,300 per m3, increased to VND7,200 per m3 for any consumption above 10 m3 and below 20 m3, and again to VND8,000 per m3 for any higher consumption. With the linearization, every household in the three villages was charged a uniform VND5,300 per m3 price and the water utility was reimbursed for the revenue loss relative to the block-price schedule. This linearized price schedule prevailed throughout the experiment, with randomized discounts applied at various points as described below. In June 2017, however, provincial authorities raised the water price to a uniform VND7,950 per m3, an increase which we passed on to all consumers and which was broadly announced by An Thinh. Throughout the experiment, the An Thinh water utility shared their administrative data on household water bills, which includes monthly water usage (in m3) and payment from July 2015 onward.

The actual price experiment started in January 2016, 6 months into the price linearization. The intervention consisted of offering households rebates on their (linearized) water price: 50 percent or 75 percent.
Intervention Start Date
2015-07-01
Intervention End Date
2018-06-01

Primary Outcomes

Primary Outcomes (end points)
household water consumption
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
About 1,500 households connected to piped water were randomly divided into three groups. We then rolled out a price subsidy scheme. Group 1 first received a 50 percent discount on piped water for a period of 6 months, with Group 2 and Group 3 serving as controls. Beginning in the second 6-month period, Group 1 got an additional 50 percent off, bringing its discount to 75 percent, while households in Group 2 received a 50 percent discount and Group 3 remained a control group. Eventually, households in Group 3 began receiving 50 and then 75 percent discounts just as the other two groups had their discounts progressively phased out. At any point in time, therefore, at least one group did not receive a subsidy.
Experimental Design Details
Randomization Method
Randomization was done in office by a computer.
Randomization Unit
Household
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
1488 households
Sample size: planned number of observations
1488 households
Sample size (or number of clusters) by treatment arms
Three groups for roll out subsidy: Group 1 = 496 households; Group 2 = 496 households; Group 3 = 496 households
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
IRB

Institutional Review Boards (IRBs)

IRB Name
IRB Approval Date
IRB Approval Number

Post-Trial

Post Trial Information

Study Withdrawal

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Intervention

Is the intervention completed?
Yes
Intervention Completion Date
June 01, 2018, 12:00 +00:00
Data Collection Complete
Yes
Data Collection Completion Date
June 01, 2018, 12:00 +00:00
Final Sample Size: Number of Clusters (Unit of Randomization)
1462 households
Was attrition correlated with treatment status?
No
Final Sample Size: Total Number of Observations
1462 households
Final Sample Size (or Number of Clusters) by Treatment Arms
Group 1: 487; Group 2: 485; Group 3: 490
Data Publication

Data Publication

Is public data available?
No

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Program Files

Program Files
No
Reports, Papers & Other Materials

Relevant Paper(s)

Reports & Other Materials