Pre-Analysis Plan: Formalization through Electricity?
A field experiment on public utilities consumption and sustained compliance in Montevideo

Dr. Sarah Berens (CCCP)

Monday, 12 June 2017
12:00 - 13:30
Institutshörsaal
Gottfried-Keller-Str. 6

Abstract:

How to reduce informality and lack of compliance is a vital question for many low- and middle-income countries. Public budgets suffer from foregone tax revenue and concurrent depletion of common pool resources. In this study, we analyze sustained cooperative relationships between citizens and state through the provision of public service delivery. Our analysis not only addresses how to increase compliance, – or, as we call it, formalization – but also how to make it last. More particularly, we examine the effect of randomly provided legal electricity connections to households in poor neighborhoods in Montevideo on individ- ual decisions to comply with government regulations. We use two treatments: provision of free electricity connections and free connections plus monthly subsidies to the electricity bill for a limited time period. We expect households that receive a free electricity connection and monthly subsidies to keep complying with regular payments of their electricity bills to a greater extent once they take on the full cost, relative to households that were not subsi- dized on a monthly basis. Moreover, we explore whether forming one contract with the state leads to a trickle down effect of being more willing to form a second (payment of property tax). The aim of the experiment is, thus, twofold: on the one hand, we study the effect of costs on compliance as distinct from sustained compliance. On the other, we study the effect of material costs (entry costs) versus non-material costs for the likelihood of formalization. As mechanisms we distinguish between this pure “entry hurdle” effect versus pathways how non-material costs can apply, such as through adaptation or experienced reciprocity, using a baseline and follow-up surveys. By studying compliance from these three different angles, the field experiment contributes to our understanding of how to make citizen-state relationships sustainable.