ABSTRACT Delaying bill payments to public utilities may provide an important strategy for households with volatile incomes to smooth their consumption. At the same time, allowing late payments may reduce net revenues for utilities, which often leads to higher prices to cover costs. Using billing records from a large water utility in Manila, this paper estimates a household consumption and savings model to evaluate counterfactual payment policies. A popular proposal to ensure upfront payments—prepaid metering—recoups less revenue than is needed to compensate households for their loss of consumption smoothing. Alternatively, a revenue‐neutral policy allowing more late payments increases welfare by encouraging greater consumption smoothing.
William Violette (Fri,) studied this question.