Improved Cookstoves are all the rage. Drawing the kind of A-List backers – from Hillary Clinton and Mary Robinson to Michelle Bachelet and Julia Roberts – that used to gravitate towards microcredit and water wells, cleaner cookstoves are indubitably flavour of the month. And with the dire health and environmental impacts of breathing all that smoke from indoor fires, it’s no wonder the development community is going all in.
Some researchers call the low take-up rates for improved cookstoves “puzzling“. To me, they’re anything but.
There’s just one problem: a lot of recipients don’t use them. In study after study, demand is weak and adoption rates are dismal. At times even when they’re given away for free, families use them only sometimes, if at all. Obviously, the Third World is a big place, so Clean Cookstoves do better in some places than others. In some studies, improved cookstoves lead to positive health outcomes, but in other settings health impacts prove elusive, with studies often throwing up equivocal, contradictory results.
Some researchers call the low take-up rates “puzzling“. To me, they’re anything but. Clean cookstoves are perceived as the solution to a problem you may have a looooong time in the future by people whose time horizons are brutally compressed by the daily grind of extreme poverty. Is it really surprising that their value is discounted down, in many cases, to zero?
In some of the wonkier corners of development academia, people are nodding thinking “ah yes, hyperbolic discounting.”
But that’s not what I mean. You don’t need to reach for some exotic discounting function to understand beneficiaries’ indifference for clean cookstoves. There’s, quite literally, no need for hyperbole.
Bear with me a second, see if this makes any sense to you: in the U.S., various government agencies calculate the “value of a statistical life” (VSL) at around $7 million. (That’s about how much a U.S. regulatory agency is allowed to spend in order to save one life.) A U.S. VSL is worth about 177 years of earnings for the median worker.
For someone living on $1.25 a day, 177 years worth of earnings is about $80,800 – we’ll call that the VSL at the global poverty line.
Now, say you’re living on $1.25 a day, and a development worker knocks on your door selling you a clean cookstove. He informs you that without it, you’ll die a gruesome death from respiratory illness 25 years from now. How much should you rationally be willing to pay for that stove today?
The answer to that depends on your discount rate, of course.
We can get some sense of what that might be by looking at the interest rates moneylenders charge in very poor countries. Some studies find that in rural Bangladesh, 103% yearly interest is not that uncommon a rate – to say nothing of the outright loan sharks who make a living in every slum in the planet charging much higher rates. But let’s stick to the non-criminal side of traditional moneylending: what’s the value today of $80,800 twenty-five years from now, discounted at 103%?
If I’m doing the math right, the answer is one fifth of one US cent. That’s how much you should rationally be willing to pay for that stove.
Even at less aggressive discount rates of, say, 60% a year, the current value of that stove to someone on $1.25 a day is still just 65 cents. But improved stoves usually cost at least $15, with more robust models in the neighbourhood of $100. Clearly, we’re not within striking range.
Yes, you could come back and say that the health impacts of indoor smoke inhalation are chronic, rather than all-at-once after 25 years, but then I could come back and tell you that there’s a ton of data implying that in the real world people typically do discount hyperbolically (or, for the pedants, quasi-hyperbolically).
However you want to characterize the discounting function, evidence of irrational present-biased discounting is rife, not just among the Bottom Billion – who face powerful reasons to concentrate on just getting through the next day – but for nicely cosseted NYU students and Netflix customers too.
The discounting functions the poorest people use might not be particularly reasonable, but then, “life under an unreasonably discount function” is as good a working definition of poverty as you’re likely to find. Out of all the things that the very poor just can’t afford, rationally valuing their future is possibly the cruellest.
Which is all by way of coming back to my mantra: if you want to do something about indoor pollution in very poor countries, focus on incomes.
Because, as incomes rise, two things happen in tandem: 1-a poor person’s implicit VSL rises, and 2-his discount rate falls. At $3 a day, 177 years of income is worth $194,050. (Exponentially) discounted at a still high but no-longer-astronomical 40%, that makes the present value of a cookstove that will prevent a gruesome death in 25 years’ time $43. As incomes rise, the math starts to work. It’s not surprising that a number of studies find the single best predictor of adoption is income (sometimes edged out by education).
And it stands to reason. Look in your kitchen. If there’s a smoke-free stove there, I bet it’s not because some NGO gave it to you. It’s because you have an income that made buying it make sense for you. And when clean cookstoves come to the bottom billion, they’ll come in very much the same way: through businesses catering to consumers with the disposable income it takes to demand a clean stove.
To be fair, the Alliance for Clean Cookstoves makes all the right noises about enabling market solutions to the problem. A lot of very bright people are working on the problem, and thank God for that. But as long as you take dollar-a-day incomes as a given you have to innovate around, you’re going to keep running up against some very hard constraints.
Hyperbole aside, there are no shortcuts to increased incomes when it comes to enabling the spread of clean cookstoves.