B. Kelsey Jack , Seema Jayachandran , Flavio Malagutti , Sarojini Rao
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Environmental externalities and free-riding in the household
In addition to generating a negative environmental externality, a household’s water consumption entails another “market failure”: household members free-ride off each other and overconsume. The problem stems from consumption being billed at the household level and the difficulty of monitoring one another’s consumption. We document the importance of this phenomenon in urban Zambia by combining utility billing records and randomized person-specific price variation. We derive and empirically confirm the following prediction: Individuals with weaker incentives to conserve under the household’s financial arrangements reduce water use more when their person-specific price increases. Another prediction is that this overconsumption problem is more acute when the financial benefit of a lower utility bill is shared unevenly among household members. We show that households indeed seem more responsive to a change in the household-level price of water when their financial arrangements are more equal. Our results offer a novel explanation for the low price sensitivity of residential water (and electricity) consumption.
期刊介绍:
The Journal of Development Economics publishes papers relating to all aspects of economic development - from immediate policy concerns to structural problems of underdevelopment. The emphasis is on quantitative or analytical work, which is relevant as well as intellectually stimulating.