[Stoves] Stove costs - considering behavioral economics

Sun Nov 20 22:15:35 CST 2011

Understanding how we can assess how much people might be willing to pay, and how they can be encouraged to take the leap and try out an improved stove that saves them money, might require some help from a variety of disciplines (thanks for those superbly detailed reports Cecil!).

I recently attended a presentation for Kirk Smith's IAP research group, by a UC Berkeley economist who conducted a study in Kampala using the Ugastove, on an investigation of alternative ways for people to buy stoves - so that typical adoption barriers (e.g. insufficient cash on hand to purchase, lack of trust in salesmen and/or the quality of unfamiliar gadgets, and doubt in claims of potential fuel savings and payback time) might be addressed:

"This sales offer is well-suited to selling improved stoves, especially for 
customers who purchase their fuel. Specifically, the first time payment
can be set so customers pay it largely or entirely from fuel savings they 
have already experienced during the free trial. If there is not enough fuel 
savings, the consumer can just return the stove.  This process repeats, so 
subsequent time payments are also largely recent fuel savings, and if the 
stove breaks the consumer returns the stove and owes nothing. With this 
combination of a free trial and “rent-to-own,” the customer bears almost 
no risk the product will not work as advertised."

The results sound very encouraging, and his experience is helpful because it comes from a little outside the usual stove community - we don't all always hear about such methods of economic investigation and analysis.  Here is some easy to digest press on the study:
http://www.ssireview.org/opinion/entry/improving_sales_offers_for_improved_stoves

and here is the (draft) report itself:
http://ehs.sph.berkeley.edu/krsmith/financial/levine11newsales.pdf

What kinds of communities would this work in, and where might it not?  As always, you want to understand what features people value in a stove plus have a general idea of what they might pay, so that you can offer those stove models which are locally suitable.

At the talk he provided additional discussion on associated concepts, such as why people don't always do what we think they logically should, and how we might determine (and perhaps adjust?) their willingness to pay (WTP).  Lots of general behavioral economics lore and jargon came up that were sometimes new to me, and always relevant - endowment effect, present bias, cash-in-advance and liquidity constraints, transaction cost impacts, the intimidating sounding Becker-DeGroot-Marschak (BDM) method for determining WTP, loss or risk aversion, and social spillover. 

Charlie Sellers

Behavioral economics and its related area of study, behavioral finance, use social, cognitive and emotional factors in understanding the economic decisions of individuals and institutions performing economic functions, including consumers, borrowers and investors, and their effects on market prices, returns and the resource allocation. 

________________________________
 From: Marc Pare <mpare at gatech.edu>
To: Discussion of biomass cooking stoves <stoves at lists.bioenergylists.org> 
Sent: Saturday, November 19, 2011 9:13 PM
Subject: Re: [Stoves] Stove costs

To add to the idea about perceived value that Cecil and Crispin started --

One of the most eye-opening readings on the topic for me was the publication "Cookstove and Markets: Experiences, Successes, and Opportunities" published by GVEP International in 2009.

(Jan -- there is also some discussion in the paper regarding your original question about price, convenience, performance)

On pg 38, the authors present a figure comparing attributes of products marketed to the poor. It turns out that the problem is more nuanced than "the price is right". The decision-making steps presented in the paper are:

"Initial Perceived Value"
"Affordable with Disposable Income"
"Affordable with Microfinance"
"Magnitude of Change [to daily habits]"

Something like Coca-Cola has a high perceived value, is affordable with disposable income, and requires little change to daily habits.

It shouldn't come as much of a surprise that cook stoves in rural areas face barriers at each of those stages.
- low perceived value because of gradual negative impact to health
- generally not affordable with disposable income
- and often a big change to daily habits 
Marc Paré
B.S. Mechanical Engineering
Georgia Institute of Technology | Université de Technologie de Compiègne

my cv, etc. | http://notwandering.com

On Sun, Nov 20, 2011 at 11:04 AM, Anand Karve <adkarve at gmail.com> wrote:

Dear Jan,
>I keep hearing about the people earning less than US$2 per day. In a
>lot of cases the income is shown to be low in statistics generated by
>the Government of that particular country. Even a landless labourer in
>a village in India would have some hens and a goat (or ducks and a
>pig), the income from which never enters the Government statistics.
>Another fact of life is that people's priorities differ from ours.
>Some of us feel that the poor should have a clean latrine and a clean
>kitchen, but the poor themselves often consider a cellphones in their
>pocket and a t.v. in the house to be more important. Also the rate of
>conversion of a dollar into the local currency is often manipulated by
>the Government. 2 Dollars in a poor country has a relatively high
>buying power in that country than in the US.
>Yours
>A.D.Karve
>
>
>On Sat, Nov 19, 2011 at 5:38 AM, Jan Bianchi <janbianchi at comcast.net> wrote:
>
>> Do any of you know of a list that compares different clean burning cook
>> stoves not only by fuel type, efficiency and emissions, but also by price
>> and the presence or lack thereof of subsidy?  I don’t see the latter
>> information on most websites that describe different stoves.
>>
>>
>>
>> If there isn’t such a list, maybe we could work to put together one by each
>> of you sending a link that describes a stove and stating the price they are
>> currently being sold for in local communities, together with whether there
>> is a subsidy and if so the amount?  I’d be happy to work with Erin to put
>> together such a list from your answers.
>>
>>
>>
>> For people living on $2 a day or less, what for example would be considered
>> a low cost stove?  Middling?  High?
>>
>
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>>
>
>
>
>--
>***
>Dr. A.D. Karve
>Trustee & Founder President, Appropriate Rural Technology Institute (ARTI)
>
>
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