metadata: authors: 0: author: Mekonnen,Alemu
1: author: Hassen,Sied
2: author: Jaime,Marcela
3: author: Toman,Michael A.
4: author: Zhang,Xiao-Bing
count: Ethiopia
docna: 0: docna: The Effect of Information and Subsidy
            Measures on Adoption of Solar Lanterns : An Application of
            the BDM Bidding Mechanism in Rural Ethiopia
docty: Policy Research Working Paper
subtopic: Energy and Mining,Energy and Environment,Energy Demand,Energy Technology & Transmission,Energy Policies & Economics,Renewable Energy,Rural and Renewable Energy
teratopic: Rural Development,Energy
abstracts: cdata!: Solar lanterns are a relatively
            inexpensive renewable-energy option for household lighting
            in developing countries. However, the transition to these
            lighting sources is slow. To understand why, this study uses
            the Becker-Degroot-Marschak bidding mechanism in a
            randomized field experiment to investigate the effect of
            information provision and subsidy policy instruments on the
            uptake of solar lanterns. Subjects’ willingness to pay tends
            to be low enough that most of them would purchase the solar
            lantern only if it is subsidized. Households with access to
            grid electricity have a lower willingness to pay and are
            less likely to adopt, while those using kerosene as a source
            of lighting are more likely to adopt. Access to credit also
            increases willingness to pay.  Information treatments have
            limited impact:  provision of different types of information
            about the private and public benefits of solar lantern use
            increases adoption only when it is combined with a high
            level of subsidies.  Given the relatively low cost of solar
            lanterns, the results suggest that achieving universal
            electricity access under the United Nations’ Sustainable
            Development Goals by any means will require subsidizing access.
geo_reg_key: 517191
repnme: repnme: The Effect of Information and Subsidy
            Measures on Adoption of Solar Lanterns : An Application of
            the BDM Bidding Mechanism in Rural Ethiopia
display_title: The Effect of Information and
            Subsidy Measures on Adoption of Solar Lanterns : An
            Application of the BDM Bidding Mechanism in Rural Ethiopia
listing_relative_url: /research/2021/03/32938794/effect-information-subsidy-measures-adoption-solar-lanterns-application-bdm-bidding-mechanism-rural-ethiopia
topicv3: Renewable Energy m1326170 525,Energy and Extractives m1326595 507,Power and Electricity Sector m1327094 515,Environment, Natural Resources and Blue
            Economy m1327391 566,Portable Off-Grid System m1503458 3913
publishtoextweb_dt: 2021-03-23T00:00:00Z
dois: 10.1596/1813-9450-9595
historic_topic: Rural Development,Energy
origu: DEC-Sustainability & Infrastruct (DECSI)
no_of_pages: 39
author_keys: 0: author_key: 166060
model_extractions: Policy Research Working Paper 9595 The Effect of Information and Subsidy Measures on Adoption of Solar Lanterns An Application of the BDM Bidding Mechanism in Rural Ethiopia _Alemu Mekonnen Sied Hassen Marcela Jaime, Michael A. Toman Xiao-Bing Zhang_ Development Economics Development Research Group March 2021
Policy Research Working Paper 9595

# **Abstract**

Solar lanterns are a relatively inexpensive renewable-energy option for household lighting in developing countries. However, the transition to these lighting sources is slow. To understand why, this study uses the Becker-Degroot-Marschak bidding mechanism in a randomized field experiment to investigate the effect of information provision and subsidy policy instruments on the uptake of solar lanterns. Subjects’ willingness to pay tends to be low enough that most of them would purchase the solar lantern only if it is subsidized. Households with access to grid electricity have a lower willingness to pay and are less likely to adopt, while those using kerosene as a source of lighting are more likely to adopt. Access to credit also increases willingness to pay. Information treatments have limited impact: provision of different types of information about the private and public benefits of solar lantern use increases adoption only when it is combined with a high level of subsidies. Given the relatively low cost of solar lanterns, the results suggest that achieving universal electricity access under the United Nations’ Sustainable Development Goals by any means will require subsidizing access.

This paper is a product of the Development Research Group, Development Economics. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://www.worldbank.org/prwp. The authors may be contacted at toman@rff.org.

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
# **The Effect of Information and Subsidy Measures on Adoption of Solar Lanterns: An Application of the BDM Bidding Mechanism in Rural Ethiopia**<sup>*****</sup>

Alemu Mekonnen, Sied Hassen, Marcela Jaime, Michael A. Toman, Xiao-Bing Zhang Key words: renewable energy, Ethiopia, solar lanterns, information, subsidy, market and nonmarket policy instruments JEL classification: D10, Q40, Q41

*Mekonnen (Lead author): Department of Economics, Addis Ababa University, Addis Ababa, Ethiopia.  Email **:** <u>alemu_m2004@yahoo.com.  Hassen:  Environment and Climate Research</u> Center, Policy Studies Institute, Ethiopia.  Email **:** <u>Seidy2004@gmail.com.</u> Jaime: University of Concepcion, Chile. Email **:** <u>mjaime@udec.cl.  Toman:  Development Research Group, World</u> Bank when the paper was written; now, Resources for the Future, Washington DC.  Email: <u>toman@rff.org.</u> Zhang: School of Economics, Renmin University, China. Email: <u>xiaobing.zhang@ruc.edu.cn.</u>

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# **The Effect of Information and Subsidy Measures on Adoption of Solar Lanterns: An Application of the BDM Bidding Mechanism in Rural Ethiopia**<sup>**1**</sup>

## **1. Introduction**

About 620 million people in Sub-Saharan Africa do not have access to electricity services. Because grid electricity is capital intensive and takes more time and resources to reach rural households, especially for dispersed settlements, off-grid electricity sources such as solar lanterns are alternatives to reach the rural poor living in remote areas, and to achieve goals of universal electrification. Notwithstanding its advantages, penetration of off-grid electricity is very limited.

Households’ reliance on biomass and kerosene for cooking and lighting creates serious health risks and imposes a significant economic burden in terms of the monetary and time costs of purchasing or gathering the fuel sources (Rom and Gunther, 2018). These patterns of household fuel use also add to the global accumulation of greenhouse gas emissions, through forest degradation, fossil fuel combustion with the use of kerosene, and black carbon emissions, among others. Thus, transition to renewable energy is important for the well-being of people in developing countries in particular and the world in general. However, recent studies in rural Africa have found that, while off-grid solar is the preferable option to reach mass electrification, poor households’ willingness to pay for this energy source is less than cost-covering prices (Grimm et al., 2020).

In Ethiopia, where this study is conducted, the use of renewable energy in urban areas, which constitute about 20% of the total population, is increasing, but the overwhelming majority of rural households continue to rely on biomass and kerosene as fuel sources for cooking and lighting. Further, while urbanization is rapidly increasing, the majority of Ethiopians will remain in rural areas for some time to come. This pattern of energy consumption in Ethiopia, which is similar to most Sub-Saharan African countries, needs to change if the energy sector is to become sustainable.

> 1 The authors gratefully acknowledge financial support from the Swedish International Development Cooperation Agency (Sida) through the Environment for Development (EfD) initiative at the University of Gothenburg, Sweden and the Environment and Climate Research Center at the Policy Studies Institute, Addis Ababa. The authors also thank participants at the EfD Annual Meeting in Bogotá (Colombia) held in November 2019 for their useful comments.

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Households face costs in shifting to renewable energy sources, including the need to acquire and become familiar with the use of different equipment. Monetary costs impede adoption by low-income households, even when the individual household benefits are fully understood. Households also may not account for global externalities (such as climate change) in their purchase decisions, and they may not fully internalize the private benefits (including reduced health risks), partly because of lack of information about such benefits. Thus, policy makers are faced with the need to design and implement cost-effective policy instruments to promote the uptake and usage of renewable technologies. Non-market-based policy instruments (e.g., information and regulation), as well as market-based instruments (e.g., prices, taxes and subsidies), can be used to promote households’ use of renewable energy sources. Policies to provide monetary incentives are expensive from a budgetary perspective, and they may not assure the actual uptake of the technology by targeted households, given informational constraints and inertia due to customs and traditions (Ang et al., 2020).

Non-price motivations, on the other hand, have played an increasingly important role during the last decade in efforts to accelerate adoption of renewable energy technologies. Experiments with non-market-based instruments have focused mainly on information provision, so that individuals become aware not only of the more direct and immediate benefits of the adoption of a given good (or technology or behavior), but also the indirect benefits such as the economic and environmental consequences of their actions. Based on the premise that household-level behavioral changes could lead to energy transitions, non-market-based instruments can be used in combination with market-based instruments to increase the adoption of renewable energy technologies.

Our review of studies that examine the effects of market-based and non-market policy instruments (e.g., Alem et al., 2017; Bernedo et al., 2014; Allcott and Rogers, 2014; Ito et al., 2015; Asensio and Delmas, 2015; Meriggi et al., 2017; Rom and Gunther, 2018; Grimm et al., 2020) suggests a lack of comparisons of these instruments. Studies that examine the role of providing information on private and environmental benefits are also limited.

Using a randomized experiment and Becker-Degroot-Marschak (BDM) willingness to pay (WTP) elicitation methods,<sup>2</sup> this study aims at investigating the effectiveness of both information provision and subsidies for adoption of and willingness to pay for solar lanterns for residential lighting in rural Ethiopia.

> 2 The BDM bidding mechanism helps elicit the true willingness to pay of subjects in an experiment which is incentive compatible because subjects will not benefit by overstating or understating their willingness to pay. For details, please see the discussion in the section on experimental design.

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The intervention consists of the provision of information (including monetary savings, health benefits and environmental benefits) in order to incentivize the adoption of a solar lantern. Unlike most previous studies on adoption of solar technologies that used the BDM method for WTP elicitation (Meriggi et al., 2017, Rom and Gunther, 2018), this paper uses a wide range of uniformly distributed prices that are truly randomly chosen; in addition, the random draw was done in front of the subjects, which increases the transparency of the process. Using the BDM mechanism and comparing price and non-price policy instruments, the study also contributes by adding evidence on adoption of off-grid technology in Ethiopia and by expanding the growing but limited literature on the interplay between price and non-price policy instruments.

We found that as expected, an increase in the amount of subsidy increases the adoption rate. However, provision of information about the private and public benefits of the solar lantern alone did not have a significant effect on adoption rate and willingness to pay. Combining information with subsidies increases adoption only when the subsidy levels are high. Most of the households would purchase the solar lantern under study only if it were subsidized, suggesting that the UN Sustainable Development Goal (SDG) and the related Sustainable Energy for All (SEforAll) goal of universal electricity access may not be achieved without subsidizing even relatively lower-cost off-grid technologies. We also found that a household’s connection to the grid decreases adoption of and willingness to pay for the solar lantern, suggesting that grid electricity is a preferred source of lighting. Conversely, the use of kerosene for lighting increases adoption of the solar lantern, suggesting kerosene is a less preferred lighting source. Access to credit increases willingness to pay by relaxing liquidity constraints faced by the respondents. Our results have implications for the importance of market-based and non-market-based policy instruments to enhance the diffusion of solar lanterns in rural Ethiopia.

The rest of the paper is organized as follows. Section 2 provides a brief review of the literature on the role of market-based and non-market based (information) policy instruments to influence pro-environmental behavior such as adoption of renewable energy technologies. In section 3, we discuss data, sampling strategy, experimental design and empirical strategy. In sections 4 and 5, we present a discussion of the descriptive and econometric results, respectively. Section 6 presents the main conclusions and policy recommendations.

# **2. Review of Literature**

In this section, we present a review of studies on the roles of information and marketbased policy instruments in addressing environmental problems.

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# **_2.1  Information Provision as a Policy Instrument to Address Environmental Problems_**

In the last couple of decades, there has been a growing trend of using information provision as a policy instrument (Sterner and Coria, 2012). Information provision attempts to influence people through transfer of knowledge, communication of reasoned arguments, and moral suasion to achieve a policy goal (Vedung and van der Doelen, 1998). The content could take the form of pure information (i.e., basic knowledge to understand a problem), normative information (i.e., how the problem is handled by others, and/or measures that are needed to tackle the problem) or argumentative information (i.e., reasons why these measures ought to be undertaken).

Previous studies have shown that non-price incentives for conservation behavior — in the water and electricity domains — can generate notable effects in water or energy consumption through providing individuals with savings tips, historical usage, real time energy usage, and peer comparisons (Jaime and Carlsson, 2018; Alem et al., 2017; Bernedo et al., 2014; Allcott and Rogers, 2014; Ito et al., 2015; Ferraro and Price, 2013; Costa and Kahn, 2013; Ayres et al., 2013; Smith and Visser, 2013; Mizobuchi and Takeuchi, 2012; Ferraro et al., 2011; Allcott, 2011; Vining and Ebreo, 2002; Abrahamse et al., 2005; Fischer, 2008; Asensio and Delmas, 2015; Allcott and Mullainathan, 2010; Chetty, 2015). In the water domain, Bernedo et al. (2014) use a randomized experimental design with over 100,000 households to study the longer-term impacts of a one-time behavioral nudge that aimed to induce voluntary reductions in water use during a drought, where they find the nudge has a surprisingly persistent effect. There is also evidence that normative messages in the form of social comparisons have a greater influence on behavior than simple pro-social messages or technical information alone (see, e.g., Jaime and Carlsson, 2018; Ferraro and Price, 2013; Ferraro et al., 2011).

In the electricity domain, Allcott and Rogers (2014) evaluate the short- and long-run effects of a series of programs to send Home Energy Report letters to residential utility customers in the United States comparing their electricity use to that of their neighbors. They find that the average program reduces energy consumption by 2.0%, which provides additional evidence on the effectiveness of non-price interventions. Similar effects were found in Allcott (2011) when focusing on a particular program, while Ayres et al. (2013) find that peer comparisons on home electricity and natural gas usage can lead to reduction in energy consumption of about 1.2% to 2.1%. Gillingham and Tsvetanov (2017) use a randomized controlled experiment to investigate the effects of information provision on home energy audit uptake and find that a message to consumers combining the effects of social norms and salience improves audit uptake by 20 percent.

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Evidence also suggests that people exhibit heterogeneous responses when they are provided with information, with changes in behavior driven by observable characteristics such as ideology. For instance, Costa and Kahn (2013) find that liberal and environmentalist households have a more energy-efficient baseline than conservative households, and they are also more responsive to home energy reports, suggesting that factors in addition to private costs may be salient in consumer decision-making. Other studies show that individuals who are less responsive to monetary incentives (i.e., wealthier households and high users of the resource) exhibit significant changes in behavior when they are targeted by information campaigns including a combination of technical information, moral suasion and social comparisons (Jaime and Carlsson, 2018; Ferraro and Miranda, 2013). There is also evidence of rebound effects in interventions of this sort, as pointed out by Byrne et al. (2014), where consumers underestimated their baseline energy consumption. In contrast, there is little evidence of heterogeneous responses to purely technical information or moral suasion (Ferraro and Miranda, 2013).

Although policies of this sort have been mostly in place in developed countries, there is also some evidence that information policies have led to notable changes in behavior in developing countries, generating not only direct effects on the targeted individuals but also indirect effects on individuals who are socially connected with those that have been targeted (Jaime and Carlsson, 2018), or among targeted individuals across consumption domains (Carlsson et al., 2020). Other studies in the context of developing countries are those of Smith and Visser (2013) and Sudarshan (2017), but overall evidence is rather limited.

Other studies have shown that people react differently to the content of information they have been provided. For instance, Asensio and Delmas (2015) find that environment and healthbased information strategies outperform monetary saving information to drive energy conservation based on a randomized controlled experiment in the United States and that these information strategies are particularly effective for families with children. Although the content and administration of the information varies to a great extent in the empirical evidence, a study of previous campaigns indicates that the most successful feedback requires a combination of frequency, a long time span of provision, appliance-specific breakdown, presentation of content in a clear and appealing way, and the use of computerized and interactive tools whenever possible (Fischer, 2008). Unlike this literature, studies of non-pecuniary incentives for water/energy conservation behavior are mainly based on cost-based and norm-based information, while other forms of information strategies (e.g., environment and health-based information strategies) are rare.

Finally, in spite of the vast evidence on the effectiveness of information policy, this instrument could lose its effectiveness if it is applied in situations where universal compliance 6
is needed. This is because it relies on voluntary action (i.e., people decide whether to change their behavior). Consequently, as stated by the theory of coinciding interest, this instrument can perform well only when the desired actions are both in the private interest of the economic agents and in the public interest of the regulator (Vedung and van der Doelen, 1998).

# **_2.2 Information Policy and Willingness to Pay for Environmentally Friendly Products_**

Because individuals consider relevant available information in their decision-making process, information is one of the determinants of an individual’s reservation price. There is a vast literature analyzing the effects of information provision on individuals’ willingness to pay for consumption goods in several domains. For instance, Oparinde et al. (2016) estimate the effect of nutrition information campaigns and the nature of planting material delivery institutions on consumer demand for biofortified yellow cassava varieties in two states of Nigeria. Consumer demand was estimated using the BDM mechanism. Results indicate that nutrition information results in a large and significant price premium in both states, whereas the nature of the delivery institution has no significant effect. In the health domain, Rousu et al. (2011) estimate the value of counter-marketing information aimed at countering tobacco company claims about the health benefits of reduced-risk cigarettes. By using data from experimental auctions, the authors find no effect of counter-marketing information on smokers’ purchasing behavior when individuals are not exposed to marketing information. However, for individuals who are presented with both tobacco company information and counter-marketing information, there is a significant average value per smoker of 8.5 cents per pack. Similarly, Monchuk et al. (2003) find that consumers who are presented with even a small amount of information are more likely to prefer low-nicotine cigarettes. This effect is especially important for individuals who want to quit smoking, compared with hard-core smokers.

As for the demand for environmentally friendly products, Bougherara and Combris (2009) investigate whether information about an eco-labeled product (i.e., its limited private benefits relative to its social benefits) generates an effect on the willingness to pay of individuals. Findings indicate that information does not affect buying prices, suggesting that consumers’ willingness to pay for the eco-labeled product is not entirely explained by the attributes generating private benefits, but rather from altruistic motives. Thus, information policy can also be used to incentivize the adoption of or willingness to pay for environmentally friendly technologies. An example is Alem et al. (2017), who investigate the effects of information and social networks on the acquisition of solar lanterns in a non-electrified part of Uttar Pradesh, India. The program consisted of giving solar lanterns to randomly selected “seed” 7
households, and then offering friends of these households the chance to purchase the lantern after some of the friends were given presentations on the lanterns by the seed households. Willingness to pay for the lantern was increased by virtue of contact with a seed household, but it was higher still with the information treatment.

# **_2.3  Roles of Market-Based Policy Instruments_**

Pecuniary policy instruments such as prices, taxes and subsidies may also be used to motivate households to reduce their consumption of electricity or to incentivize the use of renewable energy technologies such as solar. The most commonly studied pecuniary measure is charging consumers different prices for electricity usage during different time periods (e.g., Bartusch et al., 2011; Filippini, 2011; Wolak, 2011). Bartusch et al. (2011) studied the impact of an introduction of a demand-based time-of-use tariff in Sweden. They find that total electricity consumption declined by 11.1 percent and consumption shifted from peak-time to off-peak time. Filippini (2011) also finds that time-differentiated prices can provide an economic incentive to customers so that they can shift electricity consumption from peak to offpeak periods. From a dynamic pricing experiment, Wolak (2011) finds that for both regular and all-electric customers, the percentage demand reduction associated with a given percentage increase in the hourly price is approximately equal to the percentage demand reduction associated with the same percentage price increase of a much longer duration. The evidence on the effect of pecuniary incentives on the adoption of residential renewable energy technologies is still rare. Grimm et al. (2016) examine uptake and impacts of a very small household photovoltaic (PV) kit in rural Rwanda, where they find several economic and environmental impacts, only parts of which are likely to be internalized by households themselves. Their data also show that adoption is impeded by affordability, suggesting that policy would have to consider direct promotion strategies such as subsidies or financing schemes. Bensch et al. (2016) have a more positive finding in Burkina Faso, given the availability of well-performing and less costly unbranded devices. Other studies such as Meriggi et al. (2017), Rom and Gunther (2018), and Grimm et al. (2020) also provide additional evidence on the role of prices or subsidies in adoption of solar lighting technologies. Grimm et al. (2020) find that households’ willingness to pay for solar technologies in rural Rwanda is less than cost-covering prices.

# **_2.4  Effects of Information and Market-Based Policy Instruments Combined_**

Most of the studies on energy/water conservation behavior focus on the effects of pecuniary or non-pecuniary policy alone, and there is lack of comparison of pecuniary (price) vs. non-pecuniary (non-price) experiments, especially for the developing world. Sudarshan 8
(2017) provides evidence from India using a randomized control trial in conjunction with a quasi-experiment and finds that replicating the mean effect of the information nudge in electricity consumption through tariff changes alone would require at least a 12.5 percent increase in the price. Comparing these policy instruments can shed light on the debate about what best motivates households’ uptake of renewable energy and energy conservation behavior.

# **3. Methodology**

# **_3.1  Baseline Data_**

Baseline data was collected from a survey of a stratified random sample of 810 rural households from 45 study sites in Ethiopia. Sites were selected purposively from the three largest regional states of Ethiopia (Amhara, Oromia and Southern Nations, Nationalities and Peoples (SNNP) regional states) to maintain heterogeneity in site characteristics while also targeting sites that are not connected to the grid and not targeted by governmental and nongovernmental organizations for dissemination of solar lanterns. There were 18 randomly selected households in each of the 45 sites. As noted in the experimental design section below, all 810 households were subjected to the randomized field experiment.

To gather information about observable characteristics of our sample households, we also conducted a baseline survey including: (1) socioeconomic characteristics (including demographic characteristics and wealth), (2) fuel used by households for lighting and the corresponding equipment, (3) knowledge and perceptions of the environmental, health and other effects of using biomass and solar lanterns, and (4) social networks. As the survey was applied to a random sample of households in our study sites, interviewed households will be regarded as our experimental population.

# **_3.2  Experimental Design_**

After we collected data on baseline characteristics of households, we conducted an information provision experiment to promote the adoption of solar lanterns. This was followed by elicitation of the individuals’ WTP using the BDM bidding method. The incentivecompatibility of the method leads us to believe that their stated WTP is a very good approximation of their actual WTP. The following is a summary of our experimental design.

First, we provided information as follows. Interviewed individuals in each village were randomly divided into two groups (treatment and control groups) and placed in two separate rooms. Each group consisted of 9 respondents. The treatment group was provided information on the private and environmental benefits of the solar lantern, which might not be obtained from 9
retailers if a person decides to buy it from the market. The control group did not receive such information (see Appendix 4 for information provided to the treatment group). Each group also received standard information on how the solar lantern is operated and charged and other general information; this standard information, which was given to both groups, can be obtained from retailers if a person decides to buy the item on his/her own from the market. The information we provided describes the amount of money and time buyers can save, brighter light provided compared with using kerosene, and health and the environmental benefits when shifting from other energy sources such as kerosene and wood to solar lanterns. The solar lantern we used for the study is the “Sun-king Pico” with a built-in solar panel (Figure 1). This solar lantern has three light modes (turbo mode with 25 lumens for 6 hours, normal mode with 13 lumens for 12 hours, and low power mode with 2 lumens for 72 hours). It is handheld and hangable with 360 degrees tilt; 3 times brighter than a kerosene lamp, with 5 years of battery life and 2 years warranty. The selling price of the solar lantern at the time of the survey was birr 245 (about USD 8.75).

**Figure 1.** The Solar Lantern used (Sun-king Pico)

Note: Front view (left) and back view (right) 10
Second, after the information provision experiment, in each room we elicited WTP using the BDM bidding method. Before respondents stated their maximum WTP for the solar lantern, we informed them about the decision mechanism underlying the BDM bidding method. Participants were told the range of prices used (i.e., the minimum and the maximum) in the experiment and then were asked individually to bid a price for the solar lantern by stating their maximum willingness to pay. At the end, both groups (treatment and control) were gathered in one place and a random price was selected from a bucket containing a range of uniformly distributed prices. The prices ranged from 20 birr to 250 birr with an interval of 10 birr between each price.<sup>3</sup> The highest price, 250 birr, was 5 birr higher than the market price of the solar lantern at the time of the survey. All prices except the highest price reflected a subsidy relative to the market price, but the fact that the price list included a subsidy was not announced to the participants. The purchasers of the solar lantern would pay the randomly drawn price, not their WTP.

Under the above procedures, it would be in the best interest of the participants to bid according to their actual valuation of the solar lantern. This was explained to the respondents until we made sure it was understood. If a respondent’s stated WTP was below their actual WTP and a price higher than their stated WTP but not more than their actual WTP was drawn, they would not be allowed to buy the solar lantern, even if they wanted to buy it at this randomly drawn price. On the other hand, if their stated WTP was higher than their actual WTP and the randomly drawn price was higher than their actual WTP and not more than their stated WTP, they would be expected to buy the solar lantern even if they did not want to. Neither of these outcomes is in the best interest of the respondent. Individuals were also informed that if their stated willingness to pay was greater than or equal to the randomly drawn price, they would be given the opportunity to purchase the solar lantern at the randomly drawn price. Payment could be made immediately or after about a month. In cases where a household decided to purchase the solar lantern immediately, the household paid and received the solar lantern immediately.

> 3 The exchange rate at the time of the survey was 1 USD = 28 birr. This implies that the range of 20 to 250 birr is about 0.7 to 8.9 USD. The price interval of 10 birr (about 36 US cents) is quite small. The 10 birr interval was chosen because respondents’ WTP was expected to typically be in multiples of 10. This is also confirmed by the distribution of WTP data we collected from this study, in which all respondents provided their responses in multiples of 10, except 7 of the 808 respondents, whose WTP was in multiples of 5. We also note that, while the maximum price of 250 in the range is more or less the same as the market price of the solar lantern, the minimum price of 20 birr was chosen with the expectation that households may typically have a WTP of 20 or more; this is also confirmed by the results of the study, which show that only 5 of the 808 respondents had WTP of less than 20.

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Individuals who wanted to pay later were visited by supervisors after about a month, and the solar lantern was delivered immediately after the individuals made the payment.

After receiving an explanation of the BDM mechanism, each member of the group was asked individually to state his/her WTP for the solar lantern. At this stage, communication between members in each group was prohibited. Then, the two groups came together in one room where a price was randomly drawn. The randomly drawn price was the same for all households in a study site. This helps to avoid potential spillover effects as well as ethical issues and the related confusion that may arise if different prices apply to different households in the same site. <mark>Figure 2 shows the experimental design for a village.</mark> An illustration of our experimental design followed in our intervention is presented as follows, taking a village as an example. <mark>Households within a village/site/cluster are randomly assigned as BDM with information group (say, group 1) and BDM without information group (say, group 2). These two groups were placed in separate rooms (e.g., group 1 in room 1 and group 2 in room 2). Group 1 (our treatment group) received information on benefits of the solar lantern while group 2 did not. Otherwise, both groups received the same general information such as how the solar lantern is operated and charged and how the BDM bidding method works. Each member of the group then stated his/her household’s WTP for the solar lantern individually while in the assigned room. After each respondent stated his/her WTP, the two groups came together and a price was randomly selected in front of the respondents from a range of prices that are uniformly distributed (between 20 birr and 250 birr with an interval of 10 birr). This feature of our design differs importantly from most previous studies that used a few prices (typically only three or four different prices) which were determined before the fieldworkers went to the study sites.</mark><sup>4</sup> <mark>In our study, the randomly selected price became the selling price for all households within a study site/village. Also, the same individuals were used for both information provision and subsidy/price aspects of the study, which allows us to evaluate and compare individual responses to both non-monetary and monetary incentives.</mark>

> 4 In our study, in each village studied, we picked a price at random from a uniform distribution of 24 different prices. The minimum price in the distribution (20 birr) is only about 8% of the market price of the solar lantern, while the maximum price (250 birr) is about 2% higher than the market price. The price interval of 10 birr is expected to help include most of the possible prices that the respondents would state as there may be a tendency to think in terms of tens in this context. So, we believe this is truly random and the random draw in front of the subjects increases the transparency of the process, unlike previous studies which used a total of fewer than 5 different prices to randomly choose from and determined those prices ahead of the site visit. Additional advantages of our approach are that we can also consider different levels of subsidy in our analysis given the wide range of prices used in the experiment. We thank Fredrik Carlsson and Francisco Alpízar for suggesting this approach in the design.

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<!-- Start of picture text --> A Village<br>Room1: Information+BDM Room2: BDM only<br>(9 households) (9 households)<br>* Informationis givenon private and ~ Only general information is<br>environmental benefits of the solar lantern given on how to operate and<br>in addition to general information on how charge the solar lantern, etc<br>to operate and charge the device, etc ¢ Households are informed how<br>* Households are informed how BDM works BDM works<br>* Households state their WIP * Households state their WIP<br>* Random price will not be picked at this * Random price will not be picked<br>stage at this stage<br><!-- End of picture text --> <!-- Start of picture text --> Room1+ Room2<br>* Households will come together in one room<br>© Aprice will be randomly picked which is the selling price to all in the site; households<br>whose WTP is greater than or equal to the price picked can purchase the solar<br>lantern at the randomly picked price<br><!-- End of picture text -->
different random prices at different villages, the effect of these prices on adoption is as good as a village-level random allocation of the prices. The effect of the information may not be the same across the different prices. We expect that informed households with subsidized prices are more likely to adopt than uninformed households with subsidized prices. To capture the combined effect of information and prices, we introduced an interaction term in our regression as in Equation 1.

A A A A i 1 A 2P 3(A i (1) ii ii ii ii ii is a dummy variable taking a value of one if the respondent = αα + ββ ii +ββ AAP + ββ ii xx P AAP ) + XX _i_ is part of the information λλ + εε where _inf i_ treatment group and zero otherwise, and price is a continuous variable which represents the randomly drawn price of the solar lantern in site/village j _._ When using the BDM method, prices are randomly drawn from a distribution (in this case a uniform distribution) which is unknown to the participants (buyers). is household’s socio-economic characteristics, and is the error term.

Because the price variable in Equation 1 is continuous, we cannot clearly see the effect of different subsidy levels on adoption. We express the subsidy as a percentage of the market price of the solar lantern. For this reason, we consider an alternative by generating three binary prices (i.e., price with 25% subsidy or less, price with subsidy between 25% and 50% and price with subsidy between 50% and 75%) and investigate whether the effect of the three price categories is different. This also allows us to evaluate whether effects of the different prices differ between individuals who received information and those who did not. This is shown in Equation 2.

A A A A i 1 A 2 <25% 3 25−50% 4 50−75% 5 (A <25%) + 6(A 25−50% 7 (A ii 50−75% i (2) ii = αα + ββ ii +ββ PP + ββ PP + ββ PP + ββ ii xxPP ii ii ii where ββ ii xxPP<25% is a dummy variable taking the value 1 if the price of the solar lantern in the village ) + ββ ii xxPP ) + XX λλ + εε is with 25% subsidy or less including full price and 0 otherwise, 25−50% is a dummy variable PP taking the value 1 if the price of the solar lantern in the village is between 25% and 50% subsidy PP and 50−75% is 1 if the price is between 50% and 75% subsidy. The price with more than 75% subsidy is the base category. This classification of price categories is necessitated by the nature PP of the experimental design where we considered a range of 24 different prices. As noted, this is unlike most previous studies which use only three or four different prices from which a price is 14
<!-- Start of picture text --> WIP.= 65+ Omnl+Xy 65+ Omnl+Xy Omnl+XyXy +0,<br><!-- End of picture text -->

> WIP.= 65+ Omnl+Xy 65+ Omnl+Xy Omnl+XyXy +0,

<!-- Start of picture text --> 4;<br><!-- End of picture text --> 4; v; B's 0 AY
easily.<sup>5</sup> Instead, we used a linear probability model (LPM) because the coefficients are easy to interpret and marginal effects are easy to compute. In fact, Angrist and Pischke (2010) documented that OLS estimates of LPM produce coefficients that are mostly statistically indistinguishable from the marginal effects of the probit model. Moreover, because our measure of the individuals’ WTP is non-negative and only three respondents stated a zero willingness to pay, we use the OLS method to estimate the effect of information provision on WTP that was gathered through the BDM bidding method.

# **4. Descriptive Statistics**

This section discusses the descriptive statistics of the outcome variables, treatment variables and key socio-economic characteristics of the households in our study. Table 1 presents descriptive statistics of key socio-economic characteristics of the households considered in our study for the overall sample as well as for treatment and control groups.

As shown in Table 1, on average about 61% and 58% of the information treatment and control households, respectively, used kerosene as the main source of light in their house. This means the majority of households in both the treatment and control group use a dirty fuel source for lighting in their homes. In terms of use of clean lighting energy sources, about 11% and 12% of the treatment and control households, respectively, used solar, and 2.7% and 1.5% of the treatment and control households are connected to grid electricity. This is consistent with previous national level data on rural households’ access to off-grid electricity. For example, in the World Bank’s MTF survey for Ethiopia, about 11% of households in Ethiopia get electricity access through off-grid electricity sources mainly through solar technologies (MoWIE, 2019).

On average, treatment household heads were about 47 years old, and had about 3 years of education; about 92% were married and 92% were male. Likewise, the control household heads were about 48 years old, and had about 2.6 years of education; about 92% were married and 94% were male. The treatment households had on average 5.8 household members and about 86,000 birr worth of assets; 98% of them owned houses with an average of 2.4 rooms and spent about 288 birr per month for lighting. Similarly, the control households had on average 5.8 household members and about 93,000 birr worth of assets; 98% of them owned houses with an average of 2.4 rooms and spent about 270 birr per month for lighting.

> 5 Although there is an “inteff” Stata command to estimate the “marginal effect” of interaction effects, this command does not produce the marginal effect of the main variables taking the interaction into account.

16
**Table 1.** Summary Statistics

|**Variables**|**Description**|**Overall**<br>**mean**|**Treatment**<br>**Group**|**Control**<br>**group**|**(1) - (2)**|**p-value**|
|---|---|---|---|---|---|---|
|**_Household_**|||(1)|(2)|(3)|(4)|
|**_characteristics_**|||||||
|**Age**|Age of<br>household head<br>in years|46.866|45.800|48.094|-2.294|0.013|
|||(0.460)|(0.650)|(0.656)|(0.923)||
|**Gender of head**|Sex of head (1if<br>male)|<br>0.931|<br>0.923|<br>0.938|<br>-0.015|0.407|
|||(0.009)|(0.013)|(0.012)|(0.018)||
|**Education**|Education level<br>of head in years|<br>2.855|<br>3.099|<br>2.610|<br>0.488|0.029|
|||(0.112)|(0.167)|(0.148)|(0.223)||
|**Household size**<br>**_Wealth_**|Household size|<br>5.781<br>(0.071)|<br>5.768<br>(0.100)|<br>5.794<br>(0.102)|<br>-0.026<br>(0.143)|0.855|
|**_measures_**|||||||
|**Asset Value**|Total asset value<br>in 000 Birr|90|86|93|-7|0.518|
|||(59882)|(54909)|(10139)|(11713)||
|**House**<br>|Own house (1 if<br>|.<br>0.998|.<br>0.995|.<br>1.000|.<br>-0.005|0.157|
|**ownership**|yes)||||||
|||(0.002)|(0.003)|(0.000)|(0.003)||
|**Rooms**|Number of rooms<br>in the house|<br>2.388|<br>2.404|<br>2.368|<br>0.037|0.500|
|||(0.027)|(0.037)|(0.039)|(0.054)||
|**Separate**<br>**kitchen**|Separate kitchen<br>(1 if yes)|0.764|0.764|0.760|0.004|0.900|
|||(0.015)|(0.021)|(0.021)|(0.030)||
|**Thatched roof**|House has<br>thatched roof (1<br>if yes)|<br>0.226|<br>0.222|<br>0.232|<br>-0.010|0.738|
|||(0.015)|(0.021)|(0.021)|(0.029)||
|**Galvanized**<br>**iron roof**|House has<br>galvanized iron<br>roof (1 if yes)|<br>0.755|<br>0.756|<br>0.753|<br>0.002|0.935|
|||(0.015)|(0.021)|(0.021)|(0.030)||
|**_Energy features_**|||||||
|<br>**Rechargeable**<br>**lump battery**|Use of<br>rechargeable<br>lump battery for<br>lighting|0.837|0.827|0.846|-0.019|0.466|
|||(0.013)|(0.019)|(0.018)|(0.026)||
|**Kerosene**|Use of kerosene<br>for lighting (1 if<br>|<br>0.594)|<br>0.612|<br>0.576|<br>0.0370|0.29|
||yes)|(0.491)|(0.024)|(0.024)|(0.035)||

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|**Solar energy**|Use of solar<br>panel for lighting<br>(1 if yes)|0.121<br>(0.011)|0.114`<br>(0.016)|0.129<br>(0.017)|-0.015<br>(0.023)|0.502|
|---|---|---|---|---|---|---|
|**Village grid**<br>**access**|Village access to<br>grid (1 if yes)|0.178|0.175|0.180|-0.005|0.854|
|||(0.013)|(0.019)|(0.019)|(0.027)||
|**Connected to**<br>**grid**|Household<br>connected to grid<br>(1 if yes)|0.020<br>(0.005)|0.027<br>(0.008)|0.015<br>(0.006)|0.012<br>(0.010)|0.221|
|**Expenditure**|Monthly|279.471|288.144|270.754|17.390|0.514|
|**for lighting**|expenditure for<br>lighting in Birr|(13.299)|(18.721)|(18.908)|(26.608)||
|**N**|Total number of<br>households|808|405|403|808||

On average, treatment household heads were about 47 years old, and had about 3 years of education; about 92% were married and 92% were male. Likewise, the control household heads were about 48 years old, and had about 2.6 years of education; about 92% were married and 94% were male. The treatment households had on average 5.8 household members and about 86,000 birr worth of assets; 98% of them owned houses with an average of 2.4 rooms and spent about 288 birr per month for lighting. Similarly, the control households had on average 5.8 household members and about 93,000 birr worth of assets; 98% of them owned houses with an average of 2.4 rooms and spent about 270 birr per month for lighting.

In a randomized control trial (RCT), it is important to evaluate whether control and treatment households have similar characteristics before the introduction of the intervention, referred to as a balancing test in the RCT literature. If a difference is observed, the variable which is the source of the difference needs to be controlled in the regression used to analyze the causal effect of the intervention.

We conducted a balancing test using both simple mean difference and regression analysis. Table 1 shows the mean difference between control and treatment units on key socioeconomic characteristics, and Table 2 presents regression results of the balancing test. In both Tables 1 and 2, the treatment and control households are similar for most of the variables at the baseline, except the variables gender, age and education of the household head. In particular, control household heads were slightly older and slightly less educated, although the assignment of respondents to the two groups was random (Table 1). The regression for the balance test also shows that there were fewer male-headed households in the information treatment group (which 18
was weakly significant). This implies we need to include these variables in our regression to analyze adoption and WTP.

**Table 2.** Balance Test Results (OLS regression]

||Information<br>||
|---|---|---|
|Variables|Coef.|se|
|Gender of household head (1=Male, 0=Female)|-0.204*|0.108|
|Marital status (1 if married, 0 otherwise)|0.140|0.096|
|Education of household head in years|0.010|0.006|
|Age of household head in years|-0.002|0.002|
|Household size|-0.003|0.010|
|Value of total assets in Birr|-0.000|0.000|
|Number of rooms in the house|0.013|0.025|
|Household connected to grid (1 if yes, 0 otherwise)|0.192|0.128|
|Household uses solar light (1 if yes, 0 otherwise)|-0.021|0.057|
|Household uses kerosene for lighting (1 if yes, 0 otherwise)|0.033|0.040|
|Household uses fuel wood for lighting (1 if yes, 0 otherwise)|0.016|0.073|
|Access to credit (1 if access to more than 400 Birr)|0.028|0.046|
|Distance to market|0.001|0.003|
|Distance to nearest road|0.000|0.000|
|Distance to nearest town|-0.001|0.002|
|Village has access to grid (1 if yes, 0 otherwise)|-0.024|0.051|
|Constant|0.571***|0.129|
|Observations|806||
|R-squared|0.021||

Note: *** p<0.01, ** p<0.05, * p<0.1 On the descriptive experiment results, Table 3 shows the numbers and percent of households who adopted solar lanterns in the treatment and control groups. About 59% and 57% of treatment and control households, respectively, adopted the solar lantern. A simple mean difference test shows that there is no significant difference in the number of adopters between the two groups, which means that the information we provided did not make a significant difference in promoting the adoption of the solar lantern. The mean WTP of treatment households is slightly higher than control households but this difference is only weakly significant. Nonetheless, this weakly significant difference did not result in a significant difference in the number of adopters between the two groups. Figure 3 also shows maximum willingness to pay (WTP) of subjects for each of the treatment and control groups, where 19
differences are observed only for some of the much larger extreme values for the treatment group compared with those for the control group.

**Table 3** . Number and Percent of Adopters in the Information Treatment and Control Groups

|Variables|Treatment C|ontrol<br> <br>|<br>Mean<br>difference|SE of the mean<br>difference|
|---|---|---|---|---|
|Adopters (number)|239|229|||
|Adopters (percent)|59%|57%|<br>0.022|0.035|
|Total|405|403|||

**Table 4.** Mean WTP of Information Treatment and Control Groups

|Variable|Treatment|Control<br>|Mean Diff||SE|
|---|---|---|---|---|---|
|Mean WTP|154.7|<br>140.2||14.5*|8.6|

Note: *** p<0.01, ** p<0.05, * p<0.1

**Figure 3.** Maximum WTP of Households that Received Information vs those that did not Receive Information

<!-- Start of picture text --> 0= Did not receive information 1= Received information<br>2,000<br>1,500<br>1,000<br>Maximum willingness to pay<br>500<br>0<br><!-- End of picture text --> 20
Figure 4 shows the percentage of actual adopters at different levels of subsidy. The percentages are computed from sites that received the corresponding prices or subsidies. We note from Figure 4 that the percentage of adopters increases when the subsidy increases. Specifically, for sites where the price drawn was with 90 percent subsidy or more, 100% of the respondents in those sites adopted the solar lantern. With a subsidy of 75 percent or more, the percentage of respondents adopting drops by only 5 percent (to 95 percent). The percentage adopting decreases to 69 percent in sites where the subsidy is 25 percent or more.<sup>6</sup> Although our sample is from low-income rural households, considering that the solar lantern under study is not very expensive (with a full price of less than 9 USD), with most of them sold through this study at much less than the full price, this suggests that most of the households in the study area would purchase the solar lantern at less than the full price. This could be partly because of previous negative experiences or diffusion of information about bad quality of solar lanterns in the market. Large quantities of solar lanterns are dumped into the market through illegal channels, which is likely to affect the sustainability of the market.<sup>7</sup> This could also be because the subjects found the solar lantern to be too expensive.

<!-- Start of picture text --> Figure 4. Percent of Respondents Adopting by Subsidy<br>Level<br>120<br>100<br>80<br>60<br>40<br>20<br>0<br>90% 75% 50% 25%<br>subsidy or subsidy or subsidy or subsidy or<br>more more more more<br>Percent of respondents<br>100 95 89 69<br>adopting<br><!-- End of picture text -->

*The percentage of respondents adopting is calculated for sites where the subsidies actually applied based on the price drawn.

> 6 As noted, this is an advantage of our experimental design; unlike most previous studies, the fieldworkers actually did the random draw of the prices from the full list of 24 uniformly distributed prices in each of the 45 villages covered by the study. Because we use over 20 different subsidy levels, our approach provides flexibility, for example, in terms of being able to pick a wide range of subsidy levels and examining their implications; our approach also involves transparency, as the prices are drawn at random in front of the subjects.

> 7 Please see the following website about the diffusion of bad quality solar lanterns in Ethiopia: https://www.greentechmedia.com/articles/read/unlocking-an-energy-revolution-in-ethiopia-with-lessons-fromthe-black-mark#gs.22joj9

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As discussed in the experimental design section, households were also given the opportunity to pay later (after a month). As a result, about 34% of the households who were willing to buy at the randomly drawn prices made the payment after a month, while 66% made the payment and received the solar lantern at the time of the experiment. Respondents who chose to pay later could have different reasons, including the fact that they were not ready to pay; in the context of the study area, the only way they could pay immediately was in cash. Not having the required cash at the moment and not being able to borrow from people they know from the sample households could be some of the major reasons for not paying immediately. However, it is possible that respondents who chose to pay a month later did so at least partly to benefit from the time delay due to the time value of money. This would in turn imply that the willingness to pay of these respondents would have been smaller if they paid immediately due to discounting. Considering that the difference in the date of payment is only one month and that the full price is less than 9 US dollars, with most of the respondents paying subsidized prices, the difference in the amount paid between those who paid immediately and those who paid after about a month may not be very large. As noted above, lack of cash at hand is also likely to be an important reason for not paying immediately. We may also note that those who paid immediately would be compensated by the benefit from use of the solar lantern immediately (a benefit which is not available to those who pay later and receive the solar lantern later) and therefore the differences between the two groups in terms of the net benefit obtained from the solar lantern may either disappear or may be very small. In the empirical analysis, we examine whether the results differ depending on whether the WTP of those who paid a month later is discounted at 1% to calculate the present value.<sup>8</sup> Households whose WTP was less than the randomly drawn price were not given the opportunity to buy the technology even if they changed their mind for some reason, including a very low price drawn which is only slightly higher than their WTP. Of 340 respondents who did not adopt the solar lantern, 22 (which is less than 3 percent of the total sample) changed their mind and decided not to buy the solar lantern although their WTP was equal to or greater than the price drawn (referred to as decliners). We may also note that households were provided a show-up fee of 50 birr. Because of this, one may expect that these households might have changed their mind if their WTP was less than the randomly drawn price of 50 birr or less. In 11 out of the 45 villages (about 24% of the villages under study), the randomly drawn price was 50 birr or less. Only 1 of the 22 respondents who changed their mind (less than 5%) was from

> 8 Considering the arguments presented, we assumed that the discount rate for a period of a month is 1 percent, implying a simple discount rate of 12 percent per year.

22
a village where the randomly drawn price was 50 birr or less.<sup>9</sup> However, those who changed their mind were not allowed to buy the solar lantern.

The randomly picked price ranged from 20 birr to 250 birr with a mean of 122 birr. For about 50% of the respondents, the randomly picked price was 130 birr or less (which is about half of the market price of the solar lantern). On the other hand, the maximum willingness to pay of the respondents was on average 147 birr and ranged from 0 to 2,000 birr.<sup>10</sup> About 50% of the respondents were willing to pay more than 50% of the market price of the solar lantern. About 15% of the subjects were willing to pay more than the full price of the solar lantern. However, about two-thirds of those who were willing to pay more than the full price were willing to pay only 5 birr more than the full price.

Figure 5 depicts the demand curve for the solar lantern, showing willingness to pay and the corresponding percentage of respondents after excluding decliners. We note from the figure that, unlike the findings of Grimm et al. (2020), we do not observe anchoring at the lower bound of the price range announced to the respondents (20 birr). A possible reason is that we considered a wide range of prices relative to the market price—a range covering almost all possible prices, with the lowest price being only about 8 percent of the market price. We also see that willingness to pay appears to cumulate around multiples of 50, starting from 50 and ending with 250.

One of the key conclusions of the descriptive analysis is that, similar to the findings of Grimm et al. (2020) for Rwanda, most of the subjects would purchase the solar lantern only if it is subsidized. Thus, meeting the UN’s SDG and the SEforAll objective of universal electricity access would be possible if some form of subsidy is introduced, at least for some of the population. As Grimm et al. (2020) note, providing solar lanterns on credit may not address the problem either.

# **5. Econometric Results**

As discussed in the empirical strategy section, we estimate the effect of information and prices on households’ adoption and WTP for the solar lantern.

> 9 We may also note that less than 2% of respondents of villages where the randomly picked price was 50 birr or less did not buy the solar lantern, suggesting that the take-up was high in villages where the randomly picked price was low combined with the show-up fee of 50 birr that was given to each respondent.

> 10 Considering that there were high extreme values (some of which were about 8 times more than the market price of the solar lantern under study), in the econometric analysis we tried to examine whether removal of such extreme values changes the results.

23
<!-- Start of picture text --> Figure 5. Demand for Solar Lantern<br>120<br>100<br>80<br>60<br>40<br>20<br>0<br>0 50 100 150 200 250 300<br>Willingness to pay in Birr (50 and 250 Birr are lower and<br>upper bounds of prices in the experiment)<br>Uptake (Percent of respondents)<br><!-- End of picture text -->

*WTP in this figure does not include decliners (who are less than 3% of the total sample). The uptake as shown by the percentage of respondents assumes that all subjects would purchase the solar lantern if their WTP is greater than the corresponding price drawn.

# **_5.1. Analysis of Adoption_**

Tables 5 and 6 present regression results showing the effect of information and prices/subsidy on the adoption of the solar lantern at continuous and dummy prices, respectively. Regression results are presented with and without controls.

As shown in Table 5, the price variable has a negative sign and is statistically significant at the 1% level, suggesting that lower solar lantern prices can incentivize rural households to adopt the solar lantern. A one percent decrease in the price of the solar lantern increases the rate of adoption by 0.4%.

We define three dummy prices in Table 6 as less than 25% subsidy, 25% to 50% subsidy and 50% subsidy to 75% subsidy, while subsidy of 75% or more is the reference category. Regression results are presented with and without controls. As shown in Table 5, the price variable has a negative sign and is statistically significant at the 1% level, suggesting that lower solar lantern prices can incentivize rural households to adopt the solar lantern. A one percent decrease in the price of the solar lantern increases the rate of adoption by 0.4%. This is consistent with the descriptive results, which show that at full price (zero subsidy) there were only 5 households that adopted the solar device and that, when the subsidy changes to 25% of the price or less, only 38 households adopted the solar lantern. The number of adopters reached 53% only when the subsidy reached 90% of the price or less. Table 6 shows the effect of the different subsidy levels. The coefficients are interpreted relative to more than 75% subsidy, 24
which is the reference category. The coefficients of the three subsidy variables are negative and statistically significant at the 1% level, showing that adoption is lower when subsidy decreases or price increases. The magnitude of the coefficients shows that the effect is stronger at higher prices or lower subsidy levels.

**Table 5.** OLS Regression of the Effect of Information and a continuous Price on Adoption of Solar Lantern

||Without c<br>|ontrol|With co<br>|ntrols|
|---|---|---|---|---|
|Variables|Coef.|se|Coef.|se|
|Randomly drawn price|-0.004***|0.000|-0.004***|0.000|
|Information treatment|-0.005|0.037|-0.008|0.039|
|Information treatment X Randomly drawn price|0.000|0.000|0.000|0.000|
|Gender of household head (1=Male, 0=Female)|||0.112|0.095|
|Marital status (1 if married, 0 otherwise)|||-0.111|0.087|
|Education of the household head in years|||0.005|0.005|
|Age of household head in years|||-0.001|0.001|
|Household size|||-0.003|0.007|
|Value of total assets in Birr|||0.000|0.000|
|Number of rooms in the house|||0.013|0.019|
|Household connected to grid (1 if yes, 0 otherwise)|||-0.246***|0.068|
|Household uses solar light (1 if yes, 0 otherwise)|||0.016|0.041|
|Household uses kerosene for lighting (1 if yes, 0 otherwise)|||0.076**|0.033|
|Household uses fuel wood for lighting (1 if yes, 0 otherwise)|||0.063|0.063|
|Access to credit (1 if access to 400 Birr or more, 0 otherwise)|||0.030|0.033|
|Distance to market|||0.004*|0.002|
|Distance to nearest road|||0.000|0.000|
|Distance to nearest town|||-0.000|0.001|
|Village has access to grid (1 if yes, 0 otherwise)|||0.072*|0.039|
|Constant|1.109***|0.026|1.010***|0.100|
|Observations|808||806||
|R-squared|0.399||0.423||

Note: *** p<0.01, ** p<0.05, * p<0.1; Adoption =1 if household purchased at randomly drawn price and =0 otherwise 25
**Table 6.** OLS Regression of the Effect of Information and Dummy Prices on Adoption of Solar Lantern

||Without|control|Wit|hcontrol|
|---|---|---|---|---|
|Variables|Coef.|Se.|Coef.|Se.|
|Less than 25% subsidy|-0.772***|0.045|-0.786***|0.049|
|25% to 50% subsidy|-0.656***|0.045|-0.649***|0.047|
|50% to 75% subsidy|-0.312***|0.067|-0.313***|0.071|
|Information|-0.041|0.025|-0.038|0.028|
|Information X Less than 25% subsidy|0.059|0.066|0.067|0.067|
|Information X 25% to 50% subsidy|0.082|0.067|0.063|0.069|
|Information X 50% to 75% subsidy|0.196**|0.088|0.176**|0.087|
|Gender of household head (1=Male,<br>0=Female)|||0.116|0.092|
|Marital status (1 if married, 0 otherwise)|||-0.105|0.086|
|Education of household head in years|||0.002|0.005|
|Age of household head in years|||-0.001|0.001|
|Household Size|||0.000|0.007|
|Value of total assets in Birr|||0.000|0.000|
|Number of rooms in the house|||0.013|0.018|
|Household connected to grid (1 if yes, 0<br>otherwise)|||-0.221***|0.070|
|Household uses solar light (1 if yes, 0|||-0.034|0.042|
|otherwise)|||||
|Household uses kerosene for lighting (1 if yes,|||0.078**|0.032|
|0 otherwise)|||||
|Household uses fuel wood for lighting (1 if yes,|||0.070|0.064|
|0 otherwise)|||||
|Access to credit (1 if access to 400 Birr or|||0.020|0.032|
|more, 0 otherwise)|||||
|Distance to the market|||0.003|0.002|
|Distance to the nearest road|||0.000|0.000|
|Distance to the nearest town|||0.000|0.001|
|Village has access to grid (1 if yes, 0 otherwise)|||0.067|0.041|
|Constant|0.972***|0.014|0.839***|0.096|
|Observations|808||806||
|R-squared|0.416||0.436||

Note: *** p<0.01, ** p<0.05, * p<0.1; Adoption =1 if household purchased at the randomly drawn price and =0 otherwise Consistent with the descriptive results above, provision of information about the private and public benefits of the solar lantern did not make a significant difference in the rate of adoption (Tables 5 and 6). Further, a combination of price incentives and information (i.e., their 26
interaction) also did not have a significant effect on adoption, except in the case where a higher subsidy level of 50% to 75% is interacted with information, which was significant at the 5% level. This suggests that a high level of subsidy along with information could increase adoption. Without a significant subsidy, providing information about the private and environmental benefits of this technology cannot provide enough incentives to significantly change behavior. These results are robust to inclusion or exclusion of control variables (Table 6).

In Tables 5 and 6, we also considered the effect of control variables on adoption. The results show that households that are connected to grid electricity are less likely to adopt the solar lantern, suggesting that the former is a preferred substitute for lighting. In contrast, households that used kerosene for lighting were more likely to adopt the solar lantern, suggesting that solar is a preferred substitute. Moreover, households that lived farther away from the market were more likely to adopt the solar lantern, suggesting that better access to solar lanterns increases adoption; but this is weakly significant. We also find that villages that are connected to the grid are more likely to have a higher adoption rate, which was not expected, but the coefficient is weakly significant.

# **_5.2  Analysis of WTP_**

Table 7 presents the effect of information provision on individuals’ WTP for the solar lantern. We find that information treatment does not have a significant effect on WTP. Similarly to the results for adoption, households that are connected to the grid have a lower willingness to pay compared with those not connected, which is expected. Moreover, households that have better access to credit have a higher willingness to pay for the solar lantern, suggesting that credit relaxes the liquidity constraint households face. Households that used fuel wood for lighting and are farther away from the market have a higher willingness to pay but these results are weakly significant.

We also briefly discuss below the sensitivity of the analysis of WTP to the following three issues, in order: effect of extremely large WTP; effects of difference in WTP between those who collected the solar lantern after paying immediately and those who paid and also collected the solar lantern a month later; and the effect of removing respondents who did not purchase the solar lantern although they were winners (decliners).

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**Table 7.** Effect of Information on WTP for Solar Lantern with Controls

|Variables|Coef|Se|
|---|---|---|
|Information|14.391|8.962|
|Gender of household head (1=Male, 0=Female)|31.321|30.748|
|Marital status (1 if married, 0 otherwise)|-17.784|30.317|
|Education of household head in years|-0.259|1.331|
|Age of the household head in years|-0.262|0.317|
|Household size|-1.347|2.435|
|Value of total assets in Birr|0.000|0.000|
|Number of rooms in the house|2.667|5.462|
|Household connected to grid (1 if yes, 0 otherwise)|-55.462***|14.882|
|Household uses solar light (1 if yes, 0 otherwise)|-3.121|11.250|
|Household uses kerosene for lighting (1 if yes, 0 otherwise)|12.906|10.755|
|Household uses fuel wood for lighting (1 if yes, 0 otherwise)|30.371*|15.979|
|Access to credit (1 if access to 400 Birr or more, 0 otherwise)|16.523**|7.992|
|Distance to the market|1.524*|0.909|
|Distance to the nearest road|0.032|0.041|
|Distance to the nearest town|0.052|0.286|
|Village has access to grid (1 if yes, 0 otherwise)|5.231|9.287|
|Constant|94.889***|33.550|
|Observations|806||
|R-squared|0.042||

Note: *** p<0.01, ** p<0.05, * p<0.1 We noted that there are some extremely large WTP values, with some of these being much higher than the maximum price of the solar lantern. Since we informed participants about the price range (the minimum and the maximum), considering the nature of the bidding mechanism we used, one may expect that for the respondent to be able to ensure buying the solar lantern, it would just be enough if WTP is the same as the highest price in the range and not more. Some subjects’ WTP was quite high; in the most extreme case, it was 8 times the market price of the solar lantern. While such values may be a reflection of the true WTP of the subjects, some of these values may be considered too high. To examine possible effects of extremely large WTP, we run a regression after excluding these values. The main results are robust to removal of extremely large WTP (Appendix 1).

To examine the possible effects of difference in WTP of those who paid and collected the solar lantern a month later compared with those who immediately paid and collected the solar lantern, we discounted the WTP of respondents who paid about a month later at the rate 28
of 1 percent per month. In this case, as well, the results of the regression analysis are robust to discounting of WTP (Appendix 2).

The results of the regression analysis of WTP are also robust to exclusion of respondents who declined to purchase the solar lantern in spite of stating willingness to pay an amount larger than or equal to the randomly drawn price (Appendix 3). We also combined the three cases discussed above and the results (not reported here) are also robust to these changes.

# **6. Summary and Conclusion**

About 620 million people in Sub-Saharan Africa do not have access to electricity services. Off-grid electricity sources such as solar lanterns are options available, especially to reach the rural poor living in remote and dispersed settlements, which increases the cost of gridelectricity significantly. However, penetration of off-grid electricity is also very limited. In Ethiopia, only 11% of rural households use off-grid electricity sources. The overwhelming majority of rural households continue to rely on biomass and kerosene as fuel sources for lighting. Thus, the Ethiopian government needs to devise effective policy instruments to achieve the goal of 100% electrification, where 35% of this plan is to be achieved via off-grid solutions such as solar technologies.

This study examined the role of information and subsidies as policy instruments in the adoption of and willingness to pay for solar lanterns. We use the BDM method to assess and analyze preferences of rural households towards solar lanterns. Our sample included 810 subjects from 45 sites. The experimental design involved dividing households in a site into two randomly selected groups, with one receiving information while the other did not.

Our results indicate that an increase in subsidy level (or a decrease in price) increases the rate of adoption. Provision of information about the private and public benefits of the solar lantern generally did not make a significant difference in the rate of adoption, except in cases where a high level of subsidy is combined with information provision.

Similar to the findings of Grimm et al. (2020), most of the subjects would purchase the solar lantern only if it is subsidized. Thus, meeting the UN SDG and the related SEforAll goal of universal electricity access would be possible if some form of subsidy is introduced, at least for some of the population. As Grimm et al. (2020) note, providing solar lanterns on credit may not address the problem either.

Our results also show that households who use kerosene for lighting are more likely to adopt the solar lantern. On the other hand, households that are connected to the grid are less 29
likely to adopt and have a lower WTP for the solar lantern, suggesting that subjects prefer grid electricity to the solar lantern. Relaxing the liquidity constraint for households by providing them credit is also important, as households with access to credit have a higher WTP. Our results are robust to exclusion of extremely large WTP, exclusion of subjects who declined to purchase the solar lantern even if their WTP was higher than the randomly picked price, and consideration of differences in the time payment is made and the solar lantern is collected by subjects.

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