Credit and Attention in the Adoption of Profitable Energy Efficient Technologies in Kenya

What roles do credit constraints and inattention play in the under-adoption of high-return technologies? We study this question in the case of energy-efficient cookstoves in Nairobi. Using a randomized field experiment with 1,000 households, we estimate a 300% average annual rate of return to investing in this technology, or $120 per year in fuel savings – around one month of income. Despite this, adoption rates are low: eliciting preferences using an incentive-compatible Becker-DeGroot-Marschak mechanism, we find that average willingness-to-pay (WTP) is only $12. To investigate what drives this puzzling pattern, we cross-randomize access to credit with two interventions designed to increase attention to the costs and benefits of adoption.

Our first main finding is that credit doubles WTP and closes the energy efficiency gap over the period of the loan. Second, credit works in part through psychological mechanisms: around one-third of the total impact of credit is caused by inattention to loan payments. We find no evidence of inattention to energy savings. Private benefits and avoided environmental damages generate average welfare gains of $600 for each stove adopted and used for two years.