Assumptions about individual demand for savings underlie workhorse models of intertemporal choice and intra-household bargaining, banking strategy, and financial inclusion policy. A Philippine bank tested sensitivity to interest rates and account ownership requirements in 10,000 randomized door-to-door solicitations for a commitment savings account. Take-up is substantial (23%), but price elasticity of saving in this account is not significantly different from zero in either the full sample or sub-groups of plausibly marginal savers. The upper bound is less than 0.5 in the full sample, and exceeds 1.0 in only 1 of 22 sub-groups. Nor do we find sensitivity to ownership requirements.
Like many developing countries, the Philippines has made considerable progress toward the Millennium Development Goal of universal access to primary school: In 2008, the country achieved a 92 percent primary school enrollment rate. However, the challenge for education policy does not end with increasing enrollment and filling classrooms. Helping schools find cost-effective ways to improve student learning is also vitally important in light of the resource constraints that many school systems face.
Literacy is an especially critical skill, given the importance of reading for learning in every subject, for future employment, and for children’s ability to navigate successfully through life. Simply providing more resources without changing the learning environment has not proven effective in improving most children’s reading skills, so more innovative approaches are required.
A randomized evaluation by Ama Baafra Abeberese (Columbia University), Todd J. Kumler (Columbia University), and J-PAL affiliate Leigh Linden (University of Texas at Austin) investigated the impact of a one-month “read-a-thon” program sponsored by an NGO in the Philippines. Can an intensive, short-term reading program improve children’s reading habits and reading skills?
- The read-a-thon immediately increased reading activity and improved reading test scores. At the end of the program, children in the read-a-thon schools reported reading an additional 7.2 books at school in the past month and scored 0.13 standard deviations higher than children in the comparison group on tests of reading proficiency.
- Children in the read-a-thon schools read more books at home. Despite the fact that the children could rarely take books home from school, the read-a-thon participants reported reading an average of 1.2 more books at home during the month of the program.
- Children continued to read more books after the program ended. Three months after the read-a-thon ended, children in program schools were still much more likely to be reading than children in the comparison group. However, the impact had faded: children in program schools read 3.1 more books in the past month at school, and scored 0.06 standard deviations higher on reading tests.
Policymakers and microfinance institutions (MFIs) often claim to target poor entrepreneurs who then invest loan proceeds in their businesses. Typically in nonresearch settings these claims are assessed using readily available but unverified self reports from client loan applications. Alternatively, independent surveyors could directly elicit how borrowers spent their loan proceeds. That too, however, could suffer from deliberate misreporting. We use data from the Peru and the Philippines in which independent surveyors elicited loan use both directly (i.e., by asking how individuals spent their loan proceeds) and indirectly (i.e., through a list-randomization technique that allows individuals to hide their answer from the surveyor). We find that direct elicitation under-reports the non-enterprise uses of loan proceeds.
Microcredit institutions spend billions of dollars fighting poverty by making small loans primarily to female entrepreneurs. Proponents argue that microcredit mitigates market failures, spurs micro-enterprise growth, and boosts borrowers’ well-being. We tested these hypotheses with the use of an innovative, replicable experimental design that randomly assigned individual liability microloans (of $225 on average) to 1601 individuals in the Philippines through credit scoring. After 11 to 22 months, we found evidence consistent with unmet demand at the current price (a roughly 60% annualized interest rate): Net borrowing increased in the treatment group relative to controls. However, the number of business activities and employees in the treatment group decreased relative to controls, and subjective well-being declined slightly. We also found little evidence that treatment effects were more pronounced for women. However, we did find that microloans increase ability to cope with risk, strengthen community ties, and increase access to informal credit. Thus, microcredit here may work, but through channels different from those often hypothesized by its proponents.
We use two natural field experiments and surveys to identify character elements, and test whether these traits can be used to predict the likelihood of loan default. In the first experiment we identify subjects with high psychosomatic moral costs by observing their reactions when a bank error is made in their favor. In the second experiment we identify subjects that were less naïve about their own ability to meet future commitments. We found that both individuals with higher moral costs and individuals who were the least naïve displayed lower default rates than other groups. We also explore the relationship between qualitative survey-based social capital measures and loan default. We find that survey-based social capital measures are not predictive of loan default for these individual loans, contrary to the results from a prior study -with group loans. Lastly, we examine whether more general personality index measures predict default, and we find that they do not. Overall, the lessons present evidence of moral hazard in microentrepreneurial credit markets to the extent that they reflect choice by the borrower about whether to repay. They also show the potential for adverse selection insofar as these personality measures are typically unobservable to the lender.
We designed and tested a voluntary commitment product to help smokers quit smoking. The product (CARES) offered smokers a savings account in which they deposit funds for six months, after which they take a urine test for nicotine and cotinine. If they pass, their money is returned; otherwise, their money is forfeited to charity. Eleven percent of smokers offered CARES tookup, and smokers randomly offered CARES were 3 percentage points more likely to pass the 6-month test than the control group. More importantly, this effect persisted in surprise tests at 12 months, indicating that CARES produced lasting smoking cessation.
Research brief is available here.