The Effect of Network Adoption Subsidies: Evidence from Digital Traces in Rwanda

Abstract

Governments spend billions of dollars subsidizing the adoption of different goods. However, it is difficult to gauge whether those goods are resold, or are valued by their ultimate recipients. This project studies a program to subsidize the adoption of mobile phones in one of the poorest countries in the world. Rwanda subsidized the equivalent of 8% of the stock of mobile phones for select rural areas. We analyze the program using 5.3 billion transaction records from the dominant mobile phone network. Transaction records reveal where and how much subsidized handsets were ultimately used, and indicators of resale. Some subsidized handsets drifted from the rural areas where they were allocated to urban centers, but the subsidized handsets were used as much as handsets purchased at retail prices, suggesting they were valued. Recipients are similar to those who paid for phones, but are highly connected to each other. We then simulate welfare effects using a network demand system that accounts for how each person's adoption affects the rest of the network. Spillovers are substantial: 73-76% of the operator revenue generated by the subsidy comes from nonrecipients. We compare the enacted subsidy program to counterfactual targeting based on different network heuristics.