Prepayment, Salience, and Welfare

Imelda Imelda, Anna Lou Abatayo () and Budy Resusodarmo ()
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Anna Lou Abatayo: Environmental Economics and Natural Resources Group, Wageningen University and Research
Budy Resusodarmo: Australian National University, Arndt-Corden Department of Economics, Crawford School of Public Policy

No 22-2024, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: The timing of payment can enhance salience, making customers more price-responsive when paying before consumption rather than after. This study examines Indonesia’s nationwide switch to prepaid electricity metering, impacting over 40 million households. We find that prepaid metering users are twice as price-elastic as postpaid users. We also find a positive willingness to pay for prepaid metering, suggesting consumer welfare gains. As prices rise, prepaid metering reduces excess burden by 1.5% and CO2 emissions by nearly 6%. These findings suggest prepaid meters can support climate policy goals by promoting energy conservation without imposing significant burdens on consumers.

Keywords: electricity; prepayment; elasticity; salience; energy conservation (search for similar items in EconPapers)
JEL-codes: I30 Q41 Q48 (search for similar items in EconPapers)
Pages: 40, 42 pages
Date: 2024-12-17
New Economics Papers: this item is included in nep-ene, nep-env, nep-pay, nep-reg and nep-sea
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Related works:
Working Paper: Prepayment, Salience, and Welfare (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:gii:giihei:heidwp22-2024

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