Subsidies versus Mental Accounting Nudges: Harnessing Mobile Payment Systems to Improve Sanitation
47 Pages Posted: 26 Jun 2017 Last revised: 22 Jul 2018
Date Written: July 5, 2018
The proliferation of mobile money across developing countries has led to an increase in availability of mobile payment systems. This decreases the organizational complexity of allowing more flexible payment terms for customers. We test whether subsidies, deposit requirements, and access to a mobile money savings vehicle increase the propensity of households to purchase an improved but more expensive sanitation service. While high subsidies increase purchases of the improved service, interventions inspired by mental accounting such as deposit requirements and earmarked savings accounts do not. The option to save in earmarked accounts using mobile money caused households to substitute away from purchasing the improved service in the general market and towards purchasing it through our providers, rather than substituting away from the unimproved service. We discuss implications for mental accounting-based policies compared to more traditional subsidies.
Keywords: earmarking, mental accounting, mobile money, sanitation, savings, subsidies.
JEL Classification: G21, O16, Q53, Q56, Z18
Suggested Citation: Suggested Citation