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This paper tests whether uncertainty about future rainfall affects farmers’ decision-making through cognitive load. Behavioral theories predict that rainfall risk could impose a psychological tax on farmers, leading to material consequences at all times and across all states of nature, even within decisions unrelated to consumption smoothing, and even when negative rainfall shocks do not materialize down the line. Using a novel technology to run lab experiments in the field, we combine recent rainfall shocks and survey experiments to test the effects of rainfall risk on farmers’ cognition, and find that it decreases farmers’ attention, memory and impulse control, and increases their susceptibility to a variety of behavioral biases. In theory, insurance could mitigate those effects by alleviating the material consequences of rainfall risk. To test this hypothesis, we randomly assign offers of an index insurance product, and find that it does not affect farmers’ cognitive load. These results suggest that farmers’ anxiety might be relatively difficult to alleviate.

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Working Paper
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January 19, 2016
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We provide evidence from field experiments with three different banks, that reminder messages increase commitment attainment for clients who recently opened commitment savings accounts. Messages that mention both savings goals and financial incentives are particularly effective, while other content variations such as gain versus loss framing do not have significantly different effects. Nor do we find evidence that receiving additional late reminders has an additive effect. These empirical results do not map neatly into existing models, so we provide a simple model where limited attention to exceptional expenses can generate under-saving that is in turn mitigated by reminders.

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Published Paper
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January 19, 2016
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We implemented a randomized intervention among Malawian farmers aimed at facilitating formal savings for agricultural inputs. Treated farmers were offered the opportunity to have their cash crop harvest proceeds deposited directly into new bank accounts in their own names, while farmers in the control group were paid harvest proceeds in cash (the status quo). The treatment led to higher savings in the months immediately prior to the next agricultural planting season, and raised agricultural input usage in that season. We also find positive treatment effects on subsequent crop sale proceeds and household expenditures. Because the treatment effect on savings was only a small fraction of the treatment effect on the value of agricultural inputs, mechanisms other than alleviation of savings constraints per se are needed to explain the treatment’s impact on input utilization. We discuss other possible mechanisms through which treatment effects may have operated.

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January 01, 2016
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We implement an artefactual field experiment in rural Malawi to study revisions of prior choices regarding future income receipts. This allows examination of intertemporal choice revision and its determinants. New tests provide evidence of self-control problems for some participants. Revisions of money allocations toward the present are positively associated with refined measures of present-bias from an earlier survey, and with the randomly assigned closeness in time to the first possible date of money disbursement. We find little evidence that revisions of allocations toward the present are associated with spousal preferences for such revision, household shocks, or the financial sophistication of respondents.

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Working Paper
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January 01, 2016
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Experimental tests of microcredit programs have consistently failed to find effects on business and household income. Does the current microfinance model and targeting of clients miss important effects from finance? I present results of a randomized experiment with microenterprise owners in Uganda that sought to expand access to finance for men and women who generally did not qualify for finance under normal circumstances with the goal of inceasing business profits and employment. Participants were offered either capital with repayment (subsidized loans) or without (grants) and were randomly chosen to receive or not receive business skills training in conjunction with the capital. Consistent with existing literature, I find no effect for female enterprises from either form of capital or the training. However, I find large effects for men with access to loans combined with training. There is no effect for men or women from the grants, suggesting repayment requirements can increase the likelihood of productive investment. I also find little evidence that investing capital and training in a few enterprises crowds out other businesses. The results indicate that cash-constrained male-owned enterprises—a sample that is not well targeted by microcredit organizations or researchers—can benefit from subsidized finance, and that this may have larger, positive income and employment growth effects for an economy.

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December 01, 2015
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In recent years, the influx of available consumer data has presented corporate firms, non-profit organizations, and governments alike with an opportunity to increase the efficacy and targeting of their products and services. The key to identifying what works is to build experimentation through randomized controlled trials (RCTs) into the process of designing new products and services. Running RCTs, however, is not always straightforward: there are a multitude of technical, analytical, and logistical hurdles that arise during the course of designing and implementing an RCT. 

To this end, the US Finance Initiative at Innovations for Poverty Action has compiled best practices gleaned from years of experience running RCTs in the finance sector into a toolkit. The toolkit assumes a certain amount of technical knowledge and is intended for researchers, but details the often-neglected “softer” skills of managing an RCT, including the logistics of implementation and the interaction between the researcher and the partner institution, that are equally central to the success of the experiment. This guide focuses specifically on using RCTs to develop and test new financial products and services for consumers in the United States, but is applicable to RCTs in other disciplines.

Please send any feedback, questions, or comments to usfi@poverty-action.org.

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November 10, 2015
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Significant income gains from migrating from poorer to richer countries have motivated unilateral (source-country) policies facilitating labor emigration. However, their effectiveness is unknown. We conducted a large-scale randomized experiment in the Philippines testing the impact of unilaterally facilitating international labor migration. Our most intensive treatment doubled the rate of job offers but had no identifiable effect on international labor migration. Even the highest overseas job-search rate we induced (22%) falls far short of the share initially expressing interest in migrating (34%). We conclude that unilateral migration facilitation will at most induce a trickle, not a flood, of additional emigration.

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Published Paper
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November 10, 2015
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This paper measures the economic impacts of social pressures to share income with kin and neighbors in rural Kenyan villages. We conduct a lab experiment in which we randomly vary the observability of investment returns to test whether subjects reduce their income in order to keep it hidden. We find that women adopt an investment strategy that conceals the size of their initial endowment in the experiment, though that strategy reduces their expected earnings. This effect is largest among women with relatives attending the experiment. Parameter estimates suggest that women anticipate that observable income will be “taxed” at a rate above four percent; this effective tax rate nearly doubles when kin can observe income directly. At the village level, we find an association between willingness to forgo expected return to keep income hidden in the laboratory experiment and worse economic outcomes outside the laboratory.

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Published Paper
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September 17, 2015
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The Financial Services for the Poor Initiative supports research on innovations that help low-income households in the developing world access and benefit from formal financial services. We address outstanding questions on how to design and scale innovations to bring affordable and effective services within the reach of previously unbanked and underserved clients.
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September 01, 2015
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We examine whether returns to capital are higher for farmers who borrow than for those who do not, a direct implication of many credit market models. We measure the difference in returns through a two‐stage loan and grant experiment. We find large positive investment responses and returns to grants for a random (representative) sample of farmers, showing that liquidity constraints bind. However, we find zero returns to grants for a sample of farmers who endogenously did not borrow. Thus we find important heterogeneity, even conditional on a wide range of observed characteristics, which has critical implications for theory and policy.

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Working Paper
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August 01, 2015
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We design a randomized controlled trial to evaluate the adoption of credit scoring with a bank that uses soft information in small businesses lending. We find that credit scores improve the productivity of credit committees, reduce managerial involvement in the loan approval process, and increase the profitability of lending. Credit committee members’ effort and output also increase when they anticipate the score becoming available, indicating that scores improve incentives to use existing information. Our results imply that credit scores improve the efficiency and decentralize decision-making in loan production, which has implications for the optimal organization of banks.

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Working Paper
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July 02, 2015
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Agricultural productivity in Africa is low despite the existence of improved seeds, fertilizers, and pesticides. As much of the population works in agriculture, encouraging use of these improved technologies could raise productivity and in turn reduce poverty and encourage economic growth. But why do farmers fail to invest in potentially profitable technologies? One reason may be that they do not have enough cash on hand when they need to purchase them and lack access to credit. Microcredit organizations have attempted to address this problem, but the typical microcredit loan contract—where clients must start repayment after a few weeks—is ill-suited for agriculture. Providing farmers with loans at the beginning of the planting season, to be repaid in a lump sum at the time of harvest, could facilitate investment and increased profitability.
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July 01, 2015
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Interlinked transactions in which output prices are determined jointly with the terms of a credit contract are an important feature of many business relationships, particularly in developing economies. We present results from a randomized experiment designed to study how value is passed along the agricultural supply chain in the presence of such interlinkages. In response to an increase in a trader’s wholesale price, we find limited pass-through of the price to farmers. However we also find a large increase in the likelihood that traders provide credit to farmers, suggesting that the value of the wholesale price increase was passed to farmers along a different margin. We develop a model of interlinked transactions that shows how price and credit passthrough are determined, and verify its predictions empirically. Our work suggests that the presence of interlinkages is a candidate explanation for low rates of price pass-through that have been observed, but one with substantially different implications for welfare than others.

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Working Paper
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June 17, 2015
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We implemented a randomized field experiment that tested ways to stimulate savings by international migrants in their origin country. We find that migrants value and take advantage of opportunities to exert greater control over financial activities in their home countries. In partnership with a Salvadoran bank, we offered U.S.-based migrants bank accounts in El Salvador. We randomly varied migrant control over El Salvador-based savings by offering different types of accounts across treatment groups. Migrants offered the greatest degree of control accumulated the most savings at the partner bank, compared to others offered less or no control over savings. Impacts are likely to represent increases in total savings: there is no evidence that savings increases were simply reallocated from other savings mechanisms. Enhanced control over home-country savings does not affect remittances sent home by migrants.

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Published Paper
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May 01, 2015
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We implement a randomized experiment offering Salvadoran migrants matching funds for educational remittances, which are channeled directly to a beneficiary student in El Salvador chosen by the migrant. The matches lead to increased educational expenditures, higher private school attendance, and lower labor supply of youths in El Salvador households connected to migrant study participants. We find substantial “crowd-in” of educational investments: for each $1 received by beneficiaries, educational expenditures increase by $3.72. We find no shifting of expenditures away from other students, and no effect on remittances.

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Published Paper
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April 30, 2015

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