Web Appendix 1: A Model of Barriers to Product Adoption

As noted in the body of the paper, in well-functioning markets, poor people should be able and willing to purchase cost-saving items, such as stoves that substantially reduce fuel expenditures. In this appendix we lay out an illustrative model of the decision to purchase an improved appliance with perfect information and capital markets. We then model three market imperfections: imperfect information about energy savings, imperfect information about the durability of the new appliance, and liquidity constraints and/or present bias. We show how a free trial period can overcome the first barrier, while time payments coupled with the right to return the appliance and stop payments can address the remaining barriers. Finally we present a model with all market imperfections and show how a contract combining a free trial period, time payments, and the right to return the product addresses all four barriers. Although the model is framed in terms of appliances, it also applies to investment goods with uncertain returns and liquidity-constrained firms. Consumer Behavior with Traditional Appliance Assume an infinitely lived consumer has income y each period. She has to purchase Q units of energy each period to run her traditional appliance (with the price of energy normalized to unity) and sh