Payment Schemes of the Not-for-profit Operations on New Product Adoption and Fuel Saving in Developing Economies

Abstract

To achieve the United Nations' Sustainable Development Goals (UNSDGs), an ever-growing number of not-for-profit humanitarian organizations promotes the environmental and health product in developing economies. In this context, we study the impact of payment type (including the traditional cash-and-carry, free trial and installment/time payment as well as the combination of the free trial and installment payment) upon selling a new durable product (e.g., a cooking stove). Motivated by the field study by Esther Duflo (Hanna et al., 2016), the functional performance of this product and its effect of reducing fuel consumption or greenhouse gas emission are sensitive to maintenance effort of the purchasing household. We characterize the household's maintenance effort, and prove that it is more likely for the household to exert low maintenance effort with more opportunities to return the product. So, a contract type with more opportunities of returning the product has the side effect of inducing low maintenance effort of the household, which results in a low value of this product in reality. Under each payment type, the amount of fuel saving and emission reduction depends upon the joint effect of increasing the household's adoption and motivating the household's high maintenance effort. The traditional cash-and-carry offer, though resulting in a smallest sales quantity, leads to a largest fuel saving over three other offers when the selling price is either too large or too small. Moreover, we quantify this joint effect for each contract type and solve when each contract type is preferred for achieving UNSDGs. This is particularly imperative because many contemporary policy evaluations focus on the take-up rates, i.e., the immediate adoption proportions of an intervention, and funding agencies are relatively reluctant to sponsor follow-up measures of long-term, persistent impacts. This can substantiate the trend of missing the true target and incentivize short-sighted strategies.