Subsidies for Technology Adoption: Experimental Evidence from Rural Cameroon
Erwin Bulte, Professor of Development Economics at Wageningen UniversityCIES ECON seminar
Abstract: We use a subsidization experiment to contribute to the emerging literature on over-exclusion and over-inclusion of the poor in (new) product markets. A two-stage experiment is used to examine how a short-term subsidy for a new solar lamp affects uptake, usage, and future demand for solar lamps. Using an auction design to gauge willingness-to-pay for the product, we randomly vary the strike price across villages to create random variation in purchase prices and uptake across villages. Our main results are that subsidies do not adversely affect subsequent product use (no “sunk-cost effect”) but greatly stimulate uptake. If they depress future willingness-to-pay ( “anchoring effect”), then this effect is outweighed by additional learning about the benefits of the new product caused by the low prices (a “learning effect”). The net effect is that short-term subsidies increase future willingness-to-pay. However; prices play an important allocative role, and lowering prices via subsidies encourages uptake by households with low use intensity (the “screening effect”). We also document mixed evidence for social learning or diffusion of information beyond the initial sample of beneficiaries.
Niccolò F. Meriggia*, Erwin Bultea and Ahmed Mushfiq Mobarakb
a Development Economics Group - Wageningen University
b Yale School of Management – Yale University
*Corresponding author: email@example.com