Logit, Probit and Tobit Models in Modeling Consumers’ Willingness to Pay for Electricity Bill in Port Harcourt City Local Government Area of Rivers State

Abstract

An outstanding problem for the service providers of Electricity in Port Harcourt City Local Government area of Rivers State and most cities of Nigeria is the unwillingness to pay the prescribed bills by the consumers. The unwillingness to pay can be traced to unrealistic electricity bill from the service provider to consumers as well as the influence of demographic and socioeconomic factors on the side of consumers. This study identifies how the demographic and socioeconomic factors influences consumers’ willingness to pay electricity bill. Logit, probit and tobit models were used in modelling out consumers’ willingness to pay electricity bill with the aid of stata software version 16, having the demographic and socioeconomic factors as the independent variables. The study also provided quantitative evidence of the correlation between the demographic, socioeconomic factors and consumers’ willingness to pay electricity bill. Research questionnaires with a sample size of 1338 was adopted as the source of data for the study. The results show that there is positive correlation between consumers’ willingness to pay for electricity bill, demographic and socio-economic factors in Port Harcourt City Local Government Area of Rivers State. The correlation coefficient of Consumers’ willingness to pay with respect to the demographic and socioeconomic factors are 0.1828 and 0.1001 respectively while the correlation coefficient of the demographic factor with respect to the socioeconomics factor is 0.1755. The results of the Probit, logit and Tobit models were compared on the basis of Akaike Information Criterion (AIC) and Bayesian Information criterion (BIC) and it was found that the probit model with AIC and BIC values of 952.404 and -30.771 respectively was the best fitted model in modelling Consumers’ willingness to pay for electricity bill in Port Harcourt City Local Government Area of Rivers State. The coefficients of the probit model associated with the demographic and socioeconomic factors that influences consumers’ willingness to pay for electricity bill in Port Harcourt City Local Government Area are 0.5676279 and 0.3529775 respectively. These figures represent 56.7% and 35.3% increase in the Consumers’ willingness to pay for a unit increase in the demographic and socioeconomic factors. The probit model and the associated confidents from this study offers a useful guide to the electricity service providers to arrive at an acceptable electricity bill to electricity consumers in Port Harcourt City Local Government Area of Rivers state.