The Role of Flexibility and Planning in Repayment Discipline: Evidence from a Field Experiment on Pay-as-You-Go Off-Grid Electricity
Bonan J., d’Adda G., Mahmud M., Said F., (2020), The Role of Flexibility and Planning in Repayment Discipline: Evidence from a Field Experiment on Pay-as-You-Go Off-Grid Electricity, RFF Working Papers Series, Working Paper 20-14, webpage
Flexibility can help households with irregular income flows meet their payment obligations. On the other hand, the rigidity of payment schedules is believed to foster discipline and reduce defaults. We test the impact of a novel form of flexibility, the ability to set one’s own payment schedule within a month, on payment performance through a field experiment with customers of a prepaid solar systems provider in rural southern Pakistan. We combine contract flexibility with planning prompts, to mitigate its potentially negative effects on repayment. We find that flexibility in isolation negatively affects payment quality, but that combining it with planning prompts offsets this negative effect, producing behavioral outcomes that are indistinguishable from those associated with a rigid payment schedule. While treatment impacts are short-lived, they result in significant effects on contract cancellation in the long term. Our findings have implications for the applicability of planning interventions to behavioral outcomes requiring sustained effort, and for the design of contract flexibility when technological developments make frequent payments possible.