The Role of Flexibility and Planning in Repayment Discipline: Evidence from a Field Experiment on Pay-as-You-Go Off-Grid Electricity

Giovanna d'Adda, Mahreen Mahmud, Farah Said () and Jacopo Bonan
Authors registered in the RePEc Author Service: Margaret Walls

No 20-14, RFF Working Paper Series from Resources for the Future

Abstract: 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.

Date: 2020-09-11
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