Subsidies versus Mental Accounting Nudges: Harnessing Mobile Payment Systems to Improve Sanitation

47 Pages Posted: 26 Jun 2017 Last revised: 22 Jul 2018

See all articles by Molly Lipscomb

Molly Lipscomb

Batten School of Public Policy

Laura Schechter

University of Wisconsin at Madison - Agricultural and Applied Economics; University of Wisconsin at Madison - Economics

Date Written: July 5, 2018

Abstract

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

Lipscomb, Molly and Schechter, Laura, Subsidies versus Mental Accounting Nudges: Harnessing Mobile Payment Systems to Improve Sanitation (July 5, 2018). Available at SSRN: https://ssrn.com/abstract=2991771 or http://dx.doi.org/10.2139/ssrn.2991771

Molly Lipscomb

Batten School of Public Policy ( email )

235 McCormick Rd.
P.O. Box 400893
Charlottesville, VA 22904-4893
United States

Laura Schechter (Contact Author)

University of Wisconsin at Madison - Agricultural and Applied Economics ( email )

427 Lorch St.
Madison, WI 53706-1503
United States

HOME PAGE: http://aae.wisc.edu/lschechter

University of Wisconsin at Madison - Economics ( email )

William H. Sewell Social Science Building
1180 Observatory Drive
Madison, WI 53706-1393
United States

HOME PAGE: http://aae.wisc.edu/lschechter

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