Bonus versus Penalty: How Robust Are the Effects of Contract Framing?
Accepted, Journal of the Economic Science Association
We study the relative effectiveness of contracts that are framed either in terms of bonuses or penalties. In one set of treatments subjects know at the time of effort provision whether they have achieved the bonus / avoided the penalty. In another set of treatments subjects only learn the success of their performance at the end of the task. We fail to observe a contract framing effect in either condition: effort provision is statistically indistinguishable under bonus and penalty contracts.
Your Loss Is My Gain: A Recruitment Experiment With Framed Incentives
Journal of the European Economic Association, 2017
As predicted by loss aversion, numerous studies find that penalties elicit greater effort than bonuses, even when the underlying payoffs are identical. However, loss aversion also predicts that workers will demand higher wages to accept penalty contracts. In six experiments I recruited workers online under framed incentive contracts to test the second prediction. None find evidence for the predicted distaste for penalty contracts. In four experiments penalty framing actually increased the job offer acceptance rate relative to bonus framing. I rule out a number of explanations, most notably self-commitment motives do not seem to explain the finding. Two experiments that manipulate salience are successful at eliminating the effect, but do not significantly reverse it. Overall, loss aversion seems to play surprisingly little role in this setting. The results also highlight the importance of behavioral biases for infrequent, binding decisions such as contract take-up.
Group Lending Without Joint Liability
Journal of Development Economics, 2016
This paper contrasts individual liability lending with and without groups to joint liability lending. We are motivated by an apparent shift away from the use of joint liability by microfinance institutions, combined with recent evidence that a) converting joint liability groups to individual liability groups did not affect repayment rates, and b) an intervention that increased social capital in individual liability borrowing groups led to improved repayment performance. First, we show that individual lending with or without groups may constitute a welfare improvement over joint liability, so long as borrowers have sufficient social capital to sustain mutual insurance. Second, we explore how the lender's lower transaction costs in group lending can encourage insurance by reducing the amount borrowers have to pay to bail one another out. Third, we discuss how group meetings might encourage insurance, either by increasing the incentive to invest in social capital, or because the time spent in meetings can facilitate setting up insurance arrangements. Finally, we perform a simple simulation exercise, evaluating quantitatively the welfare impacts of alternative forms of lending and how they relate to social capital.
Land Trade and Development: A Market Design Approach (July 2017)
Small farms and fragmented plots are hallmarks of agriculture in less-developed countries, and there is evidence of high returns to land consolidation and reallocation. Complementarities, holdout and asymmetric information mean that private trade will be slow to reallocate land, and imply that market design has the potential to contribute to the development process. Complexity concerns are, however, paramount. We present results from a framed field experiment with Kenyan farmers, comparing the performance of several continuous-time land exchanges. Farmers are able to achieve high degrees of efficiency, and to comprehend and gain from a relatively complicated package exchange.
Measuring and Bounding Experimenter Demand (May 2017)
We propose a technique for assessing robustness of behavioral measures and treatment effects to experimenter demand effects. The premise is that by deliberately inducing demand in a structured way we can measure its influence and construct plausible bounds on demand-free behavior. We provide formal restrictions on choice that validate our method, and a Bayesian model that microfounds them. Six pre-registered experiments with eleven canonical laboratory games and around 18,000 participants demonstrate the technique. We also illustrate how demand sensitivity varies by task, participant pool, gender, real versus hypothetical incentives, and participant attentiveness, and provide both reduced-form and structural analyses of demand effects.
Depression for Economists (December 2016)
Major depressive disorder (MDD) is one of the most prevalent mental illnesses worldwide. Existing evidence suggests that it has both economic causes and consequences, such as unemployment. However, depression has not received significant attention in the economics literature. In this paper, we present a simple model which predicts the core symptoms of depression from economic primitives, i.e. beliefs. Specifically, we show that when exogenous shocks cause an agent to have pessimistic beliefs about the returns to her effort, this agent will exhibit depressive symptoms such undereating or overeating, insomnia or hypersomnia, and a decrease in labor supply. When these effects are strong enough, they can generate a poverty trap. We present descriptive evidence that illustrates the predicted relationships.
Implicit Preferences Inferred from Choice (Feb 2016)
A longstanding distinction in psychology is between implicit and explicit preferences. Implicit preferences are ordinarily measured by observing non-choice data, such as response time. In this paper we introduce a method for inferring implicit preferences directly from choices. The necessary assumption is that implicit preferences toward an attribute (e.g. gender, race, sugar) have a stronger effect when the attribute is mixed with others, and so the decision becomes less "revealing" about one's preferences. We discuss reasons why preferences would have this property, advantages and disadvantages of this method relative to other measures of implicit preferences, and application to measuring implicit preferences in racial discrimination, self-control, and framing effects.
Commercialization and the Decline of Joint Liability Microcredit (Feb 2016)
Numerous authors point to a decline in joint liability microcredit, and rise in individual liability lending. But empirical evidence is lacking, and there have been no rigorous analyses of possible causes. We first show using the well-known MIX Market dataset that there is evidence for a decline. Second, we show theoretically that commercialization - an increase in competition and a shift from non-profit to for-profit lending (both of which are present in the data) - drives lenders to reduce their use of joint liability loan contracts. Third, we test the model's key predictions, and find support for them in the data.
Market Structure and Borrower Welfare in Microfinance (Feb 2016)
Motivated by recent controversies surrounding the role of commercial lenders in microfinance, and calls for regulation of the sector, we analyze borrower welfare under different market structures, considering a benevolent non-profit lender, a for-profit monopolist, and a competitive credit market. To understand the magnitude of the effects analyzed, we simulate the model with parameters estimated from the MIX Market database. Our results suggest that market power can have severe implications for borrower welfare, while despite possible enforcement externalities competition typically delivers similar borrower welfare to non-profit lending.
Depression Through the Lens of Economics: A Research Agenda
Forthcoming in NBER volume "The Economics of Asset Accumulation and Poverty Traps"
Major depressive disorder (MDD) is one of the most prevalent mental illnesses worldwide. Existing evidence suggests that it has both economic causes and consequences, such as unemployment. However, depression has not received significant attention in the economics literature, and existing work is almost entirely empirical. We see great potential for traditional, theoretical economic analysis to both develop new insights about depression, and to form new connections to other areas of economics. In this paper, we begin with an overview of the canonical symptoms of depression, identifying a set of key facts that lend themselves well to economic analysis. We illustrate these facts with descriptive analysis of data from Indonesia. We then discuss what we see as fruitful avenues for new theoretical work, building on those facts.
Is the credit worth it? For-profit lenders in microfinance with rational and behavioral borrowers
Prepared as a background paper for the World Development Report, 2015.
with Maitreesh Ghatak
Microfinance, Market Structure, and Borrower Welfare: Regulatory Lessons from the Indian Crisis
Report prepared for the World Bank, 2012.
with Thiemo Fetzer and Maitreesh Ghatak
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