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Prepayment, Salience, and Welfare

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Abstract

The timing of payment can enhance salience, making customers more price-responsive when paying before consumption rather than after. This study examines Indonesia’s nationwide switch to prepaid electricity metering, impacting over 40 million households. We find that prepaid metering users are twice as price-elastic as postpaid users. We also find a positive willingness to pay for prepaid metering, suggesting consumer welfare gains. As prices rise, prepaid metering reduces excess burden by 1.5% and CO2 emissions by nearly 6%. These findings suggest prepaid meters can support climate policy goals by promoting energy conservation without imposing significant burdens on consumers.

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  • Imelda & Anna Lou Abatayo & Budy Resusodarmo, 2024. "Prepayment, Salience, and Welfare," IHEID Working Papers 22-2024, Economics Section, The Graduate Institute of International Studies.
    • Handle: RePEc:gii:giihei:heidwp22-2024
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    Keywords

    electricity; prepayment; elasticity; salience; energy conservation;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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