Publication Type

Journal Article

Version

acceptedVersion

Publication Date

12-2025

Abstract

Millions of people in poverty lack access to basic services such as energy, clean water, and cooking gas. Private firms are increasingly delivering these services—for example, by offering solar home systems or clean cooking packages with remote lockout capabilities—through pay-as-you-go (PAYGo) contracts that give consumers flexibility over payment timing and amount to match their erratic cash flows. Because firms cannot observe consumer liquidity, however, consumers may misuse this flexibility and prioritize other needs over repayment. We study how to design contracts that preserve flexibility while creating incentives for timely repayment using an optimal contracting approach. The optimal contract summarizes each consumer’s payment history with a single score, controls flexibility by recommending payment amounts, and incentivizes payments by specifying how the score updates after each payment. The score determines both the level of technology access granted to the consumer and whether the contract is continued or terminated. While effective in aligning incentives, this dynamic scheme can be difficult for consumers to comprehend. We therefore identify key structural features of the optimal contract and design a simpler, more practical version that preserves these features, in which a consumer accesses the technology using credit points she gains or loses over time based on her payment history. We also discuss how incorporating these key features could help PAYGo firms improve upon their current practices.

Keywords

poverty, access to basic services, energy, clean water, cooking gas, pay-as-you-go, PAYGo, payment flexibility, payment incentives, optimal contract

Discipline

Operations and Supply Chain Management

Research Areas

Operations Management

Publication

Management Science

First Page

1

Last Page

79

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.2139/ssrn.4666098

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