Testing Willingness to Pay Elicitation Mechanisms in the Field: Evidence from Uganda
Journal of Development Economics (short paper), 2021
Researchers frequently use variants of the Becker-DeGroot-Marschak (BDM) mechanism to elicit willingness to pay (WTP). These variants involve numerous incentive-irrelevant design choices, some of which carry advantages for implementation but may deteriorate participant comprehension or trust in the mechanism, which are well-known problems with the BDM. We highlight three such features and test them in the field in rural Uganda, a relevant population for many recent applications. Comprehension is very high, and 86 percent of participants bid optimally for an induced-value voucher, with little variation across treatments. This gives confidence for similar applications, and suggests the comprehension-expediency trade-off is mild.
Measuring and Bounding Experimenter Demand
American Economic Review, 2018
We propose a technique for assessing robustness to demand effects of findings from experiments and surveys. The core idea is that by deliberately inducing demand in a structured way we can bound its influence. We present a model in which participants respond to their beliefs about the researcher's objectives. Bounds are obtained by manipulating those beliefs with "demand treatments." We apply the method to eleven classic tasks, and estimate bounds averaging 0.13 standard deviations, suggesting that typical demand effects are probably modest. We also show how to compute demand-robust treatment effects and how to structurally estimate the model.
Commercialization and the Decline of Joint Liability Microcredit
Journal of Development Economics, 2018
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
Economic Journal, 2018
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.
Your Loss Is My Gain: A Recruitment Experiment With Framed Incentives
Journal of the European Economic Association, 2018
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.
Bonus versus Penalty: How Robust Are the Effects of Contract Framing?
Journal of the Economic Science Association, 2017
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.
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.
The Long-Run Effects of Psychotherapy on Depression, Beliefs, and Economic Outcomes (2022)
We revisit two clinical trials that randomized depressed adults in India (n=775) to a brief course of psychotherapy or a control condition. Four to five years later, the treatment group was 11 percentage points less likely to be depressed than the control group. The more effective intervention averted 9 months of depression on average over five years and cost only $66 per recipient. Therapy changed people's beliefs about themselves in three ways. First, it reduced their likelihood of seeing themselves as a failure or feeling bad about themselves. Second, when faced with a novel work opportunity, therapy reduced over-optimistic belief updating in response to feedback and thus reduced overconfidence. Third, it increased self-assessed levels of patience and altruism. Therapy did not increase levels of employment or consumption, possibly because of other constraints on employment in the largely female study sample.
Implicit Preferences (2022)
We show how simple decisions can, by themselves, reveal two layers of preference. Consider a hiring manager who always chooses a woman over a man with the same qualifications, but always chooses the man if their qualifications differ. Intuitively, these intransitive choices reveal an explicit preference for women, but an implicit preference for men. More generally, we define an implicit preference for an attribute as one whose influence increases the more the attribute is mixed with other attributes ("dilution"). We show that implicit preferences arise under a diverse set of psychological foundations: rule-based decision-making, signaling motives, and implicit associations. We prove a representation theorem for the model and show how implicit preferences can be identified from binary choices or from joint evaluation data. We apply the model to two published datasets, finding evidence for implicit risk preferences, implicit selfishness, and implicit discrimination.
Market Design for Land Trade: Evidence from Uganda and Kenya (2022)
Market design has increased efficiency in complex reallocation problems in the developed world. Because reallocation may be necessary for development, there is potential for market design to contribute to reducing poverty. A key constraint is that low levels of literacy and numeracy may preclude the poor from benefiting from complex market designs. To understand the importance of this constraint, we conducted a lab-in-the-field experiment with Kenyan small-holder farmers. Farmers traded land in a hypothetical environment where theory suggests a package auction would thicken markets and reduce exposure risk. Comparing performance in a more complex package auction to a simpler continuous double auction we show that the added complexity increased efficiency, reducing the gap to the first best by around 26%. We find no evidence that the added complexity increased inequality.
Credit Constraints and Demand for Remedial Education: Evidence from Tanzania (2021)
Revise and resubmit, Economic Journal
We study how credit constraints affect access to a remedial education program for girls. We gave an unconditional cash transfer to randomly selected households, then measured their Willingness To Pay (WTP) for the program. In the control group average WTP was 3,300 Tanzanian Shillings, seven percent of per-capita monthly expenditures. For those identified at baseline as able to borrow, the cash transfer increases WTP by three percent. For those unable to borrow, the cash transfer increases WTP by 27 percent. We conclude that credit constraints limit access to educational programs, and may increase inequality of outcomes.
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.
Experimenter Demand Effects
in Handbook of Research Methods and Applications in Experimental Economics, 2019
A study's internal and external validity is threatened by experimenter demand effects. This threat is taken seriously by experimental economists, who have developed a number of best practices to suppress or eliminate the potential role of such effects. We outline these best practices and review the literature to show that they are followed in the vast majority of published work. This adherence to best practice likely contributes to the limited evidence of experimenter demand effects uncovered in the literature. Specifically, we are not aware of examples where demand effects have been shown to influence the qualitative inference from a study. While good design goes a long way towards reducing the potential for experimenter demand effects, a complementary option, presented in our final section, is to derive bounds on the effect.
Depression Through the Lens of Economics: A Research Agenda
The Economics of Asset Accumulation and Poverty Traps, 2019
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
Annals of Public and Cooperative Economics, Centennial Issue, 2018
The bulk of the literature on microcredit has focused on either not-for-profit lenders or assumes a perfectly competitive, zero-profit market equilibrium. Yet the market has experienced a significant shift toward for-profit lending and the assumptions of perfect competition are likely to be too strong in many locations. We review the state of the literature on for-profit lending in microcredit, consider its implications for both conventionally 'rational' borrowers and for borrowers with behavioral biases, and point out directions for future research.
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