Optimal Utility Pricing when Consumers Form Habits : The Case of Piped Water in Vietnam
As utility services expand throughout the developing world, providers must grapple with how to set prices to recover average costs. Data from a multi-year randomized pricing experiment among nearly 1500 recently-connected piped water customers in Vietnam reveal month-to-month demand persistence...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2020
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| Subjects: | |
| Online Access: | https://documents.worldbank.org/en/publication/documents-reports/documentdetail/321751586281645715/optimal-utility-pricing-when-consumers-form-habits-the-case-of-piped-water-in-vietnam http://hdl.handle.net/10986/33581 |
| Summary: | As utility services expand throughout the developing world,
providers must grapple with how to set prices to recover
average costs. Data from a multi-year randomized pricing
experiment among nearly 1500 recently-connected
piped water customers in Vietnam reveal month-to-month
demand persistence. Based on structural demand estimation,
the authors document how endogenous preferences,
if unaccounted for, can lead to low take-up and thereby
threaten the financial viability of the new water utility. They
also show that such demand persistence, while distinct from
credit constraints, calls for pricing schemes that similarly
defer payment, effectively allowing future consumers to
subsidize their present selves. |
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