Can behavioral insights help meet infrastructure provision goals?

Behavioral economics has shown us the importance of human psychology and social norms when designing and implementing public policy interventions. It has highlighted the need to recognize that people’s decisions are not always based on rational choice. They are more often automatic or emotionally driven and they may respond to social incentives.

Every individual can be seen to engage in two ‘systems’ of thinking as first described by Kahneman and Tversky.  System 1 thinking is intuitive, automatic and fast, while System 2 is reflective, rational and slow. Nobel Prize winner Richard Thaler popularized this approach in the discipline of economics, a sphere dominated by the idea of the rational economic man or homo economicus. Traditional economics relies on the assumptions that (i) people make rational decisions, (ii) individual choices are consistent with a desire to maximize gains, and (iii) people correctly update their opinions and beliefs (priors) based upon new information that they receive. Recent studies have shown how social norms and psychological factors affect decision-making of individuals and groups.

Figure 1 Two system thinking by Kahneman & Tversky

_{Source: https://inkbloter.com/great-learnings-from-thinking-fast-and-slow/}

So as a sector which is critical for economic growth and service provision, shouldn´t we consider people’s attitudes, motivations and behaviors when addressing bottlenecks in infrastructure provision? This is the motivation of our recent work, which explores traditional bottlenecks in the infrastructure sector through a behavioral lens.

One billion people around the world still lack access to electricity and over 2.2 billion people lack access to safe drinking water. As Rozenberg and Fay show, real investments in infrastructure in Africa, South Asia, and Latin America are 3.5%, 4.7%, and 3.2% respectively, while their needs are estimated to be at 9.2%, 7.5% and 4.5% of the GDP respectively. Other pervasive non-funding related challenges, such as weak governance systems, poorly performing utilities, and barriers to the adoption and use of new services accentuate current gaps in service provision.

Figure 2 Gaps in water, sanitation & hygiene infrastructure access

_{Source: United Nations (2021)}

 Behavioral insights offer a more nuanced way to approach bottlenecks in the infrastructure sector, which must be solved in conjunction with addressing funding deficits. 

We argue that biases, attitudes, preferences, and behaviors of actors in infrastructure provision permeate nearly every level of decision-making. Mental shortcuts to make decisions based on intuition, emotion, or heuristics are as common here as they are in other decision-making processes. Let’s take handwashing as an example. The placement of handwashing facilities in a community affects how people use them. For example, if they are placed in a visible and easily accessible space people may be more likely to wash their hands.

Behavioral factors manifest themselves in several ways among the diverse actors in the infrastructure sector. Since these are individuals or collectives of individuals, several behavioral factors affect their actions, and they are often contrary to what is predicted by standard economic models.  

In our recent paper , we explore the behavioral insights for each of the main actors involved in the infrastructure service provision: policymakers, service providers, and consumers.

Figure 3: Infrastructure Triad through a Behavioral Lens

Policymakers

The policymakers’ role is to identify the population’s needs, balance conflicting interests and implement solutions, subject to the available resources. Policymakers face three main challenges which are affected by behavioral factors: (i) prioritize and finance infrastructure projects; (ii) establish contractual arrangements for the service provision; and (iii) enable effective regulatory arrangements. In practice, behavioral biases can cause a misalignment of objectives between policymakers and citizens. For example, policymakers’ time horizon is biased by short-term returns dictated by the electoral cycle, while individual decisions are often set in the long run. These misalignments show up in wasteful infrastructure investments, commonly known as white elephants (Robinson & Torvik, 2005).  

Service Providers

When taking a behavioral lens, the main challenges that infrastructure service providers face include (i) providing improved quality service, (ii) sustaining employee’s motivation, and (iii) adopting new technologies and practices.   For example, in the water sector, better managerial practices based on behavioral insights are associated with improved service quality and technical efficiency (Porchet & Saussier, 2018). Also, there could be an innate difference in motivation between employees working in the public and the private sector, which can have implications in the design of rewards within the organization. For example, people working in the public sector may have pro-social motivations, which make them less sensitive to monetary rewards. In fact, experiments have shown that monetary incentives for activities with pro-social objectives may crowd out employees’ intrinsic motivation (Bellé et al. 2015, Ashraf & Bandeira, 2018). The main finding from a behavioral perspective is how to design contracts to achieve self-selection of socially motivated individuals for public service and to sustain their pro-social motivation through an appropriate mix of monetary and non-monetary incentives.

Consumers

Consumers face two fundamental decision challenges: (i) adopting a new service and (ii) deciding the level or the amount of consumption. Recently, climate change considerations have introduced a third problem: (iii) conservation, which has become especially relevant in some infrastructure sectors, such as water and energy. The choice architecture to address each issue is different. For example, when deciding to adopt a new service, choice overload and status quo bias may be strong, while when it comes to consumption decisions, social norms may be more relevant. For instance, regarding conservation issues, Allcott has studied the influence of social norms and information on the consumption of energy using additional information provided on an electricity bill using written messages, comparison graphics and encouraging symbols. Results show that these nudges showed an average reduction of 2.0% in energy consumption in the United States.

Figure 4 Results of experiment on social norms and energy consumption

_{Source: Allcott (2011)}

Several studies have been undertaken about the impact of behavioral approaches mostly focusing on the design of social programs and financial decision making. Given the significant challenges the infrastructure sector faces in expanding services and improving quality, there is a lot of potential for further investigation. The significance of these behavioral interventions will depend on how common they are as well as how large their impact is.

Our paper focuses on the importance of behavioral insights for the infrastructure sector. We hope to motivate further studies to integrate such insights in the design and implementation of interventions to achieve better development outcomes.