this credit for sanitation investments. This could be explained by differences in availability of information at different times in their sequential decision making process. The household needs to make two sequential decisions. First, they need to decide whether or not to take up a sanitation loan. Second, they need to decide whether or not to use the loan for sanitation investment. The former decision is made before the start of the toilet construction works, at a time when the household does not necessarily have full information about either the true costs of toilet construction and/or about the actual delay in subsidy disbursement that it will face. The decision therefore depends on the household’s ex-ante beliefs about these benefits and costs, and on the risks they take by taking up micro-credit whilst potentially getting these beliefs wrong. The latter risk depends, in turn, on the extent to which the household expects to be penalised if it ends up using the loan for non-sanitation purpose. In a context where loan use is not strictly monitored and not enforced, households might decide to apply for the sanitation loan - and more so if larger delays in subsidy disbursement are expected to allow for bridge funding - with the prospect to give up on their plans if the actual sanitation investment costs (toilet costs and interest payments) turn out to be high relative to the perceived benefits. This could explain the finding of (i) relatively high impacts on sanitation loans and (ii) zero impacts on toilet uptake in areas with short delays in subsidy disbursement. In the next section, we explore the extent to which variation in toilet prices confirm these results.

# **Provision of supplementary funding to subsidy eligibles**

The second channel we consider for eligible households relates to the fact that most Indian households prefer to construct expensive toilet types, typically sceptic tanks and toilets with a nearby bathroom (Coffey et al., 2014, Coffey and Spears, 2017). Coffey et al. find that the typical household in their survey of 5 Northern Indian states would like to invest in a toilet costing Rs 21,000 on average, which is substantially higher than the maximum subsidy amount of Rs 12, 000. Figure 6 shows a similar pattern in our data. This figure plots toilets costs and subsidy amounts taken over time, as reported by households survey respondents. Since 2010, though the median reported subsidy amount has been fluctuating around Rs. 12,000, the median reported toilet cost has been steady around Rs. 26,000.

If micro-credit was used by subsidy eligible households to cover the funding gap between the subsidy amount and the actual toilet construction costs, then we would expect impacts on sanitation loan uptake to be higher in areas where toilet costs are generally higher. On the other hand, for similar reasons as for delays in sanitation subsidy disbursement that we described in the previous section, we would expect to see a reduction in the loan to new toilet conversion rate if the toilet turns out to be more expensive than anticipated when taking the sanitation loan, as higher toilet costs make sanitation investments less attractive relative to other investments.

To look at this, we make use of some unique data we collected from one mason in each village on the minimum and maximum cost of constructing the same twin pit and septic tank toilet. We take the average of the minimum and maximum costs reported by masons to calculate an average cost over the different toilet types. We construct an indicator for ‘high GP toilet cost’ if the mason reported an average toilet cost in his/her community that was higher than or equal to the median toilet cost across villages, and ‘low GP toilet cost’ otherwise.

Table D in the Appendix compares these two different village types in terms of a set of observable 23