Microcredit and Willingness to Pay for Environmental Quality: Evidence from a Randomized-Controlled Trial of Finance for Sanitation in Rural Cambodia

A. BenYishay, A. Fraker, R. Guiteras, G. Palloni, N.B. Shah, S. Shirrell and P. Wang

Journal of Environmental Economics and Management, Vol. 86: 121-140, November 2017, doi:10.1016/j.jeem.2016.11.004.

Abstract: Low willingness to pay (WTP) for environmental quality in developing countries is a key research question in environmental economics. One explanation is that missing credit markets may suppress WTP for environmental improvements that require large up-front investments. We test the impact of microloans on WTP for hygienic latrines via a randomized controlled trial in 30 villages in rural Cambodia. We find that microcredit dramatically raises WTP for improved latrines, with 60% of households in the Financing arm willing to purchase at an unsubsidized price, relative to 25% in the Non-financing arm. Effects on latrine installation are positive but muted by several factors, including a negative peer effect: randomly induced purchases by neighbors reduce a household's probability of installing its own latrine. On methodological grounds, this paper shows that a “decision-focused evaluation” can be integrated into academic analysis to provide insight into questions of general interest.

PDF (open access): http://www.sciencedirect.com/science/article/pii/S0095069616304405/pdfft?md5=d5189836f5ff29e495e1dc859e4dc31b&pid=1-s2.0-S0095069616304405-main.pdf

Pre-registration: https://www.socialscienceregistry.org/trials/37

Replication code and data: doi.org/10.7910/DVN/SQDCJZ