Timing is Everything: Poverty Alleviation and the Demand for Energy-Using Assets

Over the next several decades, economic development and anti-poverty programs will likely lift the incomes of the world's poor. In this paper, we study the implications for energy use, focusing on the accumulation of energy-using assets. We begin by developing a simple model of household asset accumulation as a function of income when consumers are credit constrained. We show that households are more likely to give up consumption of non-durables, such as food, in order to acquire durables, such as refrigerators, when transfers are lumpy or income growth is fast. We find empirical support for this model using data from Oportunidades, the Mexican conditional cash transfer program that began in 1998. Specifically, among households that received the same level of cumulative transfers, we find fewer refrigerators purchased by those that were randomly selected to begin receiving the transfers earlier, suggesting that they have accumulated the transfers over a longer time period. We go on to show that income has a negligible effect on energy use conditional on asset ownership, confirming that the main driver of increased energy use among poor Mexicans has been the accumulation of energy-using assets. Our results have implications for evaluating the effects of the timing of transfer payments and for considering the effects of income growth on energy use.

Speaker: Catherine Wolfram, Associate Professor and Co-Director, Energy Institute at Haas, UC Berkeley

Part of the Fall 2010 i4Energy Seminar Series. Live broadcast at mms://media.citris.berkeley.edu/webcast; Questions can be sent via Yahoo IM to username: citrisevents.