"Discounting for You, Me and We: Time Preference in Groups and Pairs" [pdf]
In this study, I contrast intertemporal preferences for oneself with such preferences for others. I conduct a laboratory experiment in which I elicit measures of time preference and time-consistency under four experimental choice conditions: deciding for one's own payoff, deciding for another individual (a "partner"), deciding in pairs and deciding in groups of four. Consistent with a simple model of altruism and more patient preferences for others, I find that individuals are more patient when making savings choices for others or in groups. Moreover, group decisions can be more patient than the individual preference of the most patient group member, a phenomenon not accounted for by standard models. Also consistent with this model, I find that the effect is pronounced in larger groups. I further consider how interpersonal relationships affect intertemporal preference for others and the extent to which preferences for others diverge from what the other person would choose for themselves.
“Liability Structure in Small-scale Finance Evidence from a Natural Experiment”
Joint with Shawn Cole, Fenella Carpena and Bilal Zia [pdf]
Microfinance, the provision of small individual and business loans, has witnessed dramatic growth, reaching over 150 million borrowers worldwide. Much of its success has been attributed to overcoming the challenges of information asymmetries in uncollateralized lending. Yet, very little is known about the optimal contract structure of such loans—there is substantial variation across lenders, even within a particular setting. This paper exploits a plausibly exogenous change in the liability structure offered by a microfinance program in India, which shifted from individual to group liability lending. The analysis finds compelling evidence that contract structure matters: for the same borrower, required monthly loan installments are 6 percent less likely to be missed under the group liability setting, relative to individual liability. In addition, compulsory savings deposits are 19 percent less likely to be missed under group liability contracts.
“Weather Insurance and Investment Choice” [pdf]
Exposure to the risk of extreme weather conditions has been shown to constrain investment by subsistence farmers in developing countries and may lead to inefficient production choices. This paper evaluates whether insuring farmers against such risks alters resource allocation decisions. In particular I consider the effects of a Mexican government disaster relief program with insurance-like features. The results, based on a regression discontinuity design, indicate that insurance against losses arising from natural disasters changes how rural households invest in their farms. Insured farmers utilize more expensive capital inputs and adopt different technologies. Additionally, the insurance changes labor supply patterns. Notably, members of insured households are approximately 10% more likely to migrate internationally. Additional results, that the program matters most when the returns to migration are more unpredictable, are consistent with a model where insurance obviates the need for precautionary savings, allowing households to finance international migration.
“Targeting Efficiency: How well can we identify the poor?”
Joint with Abhijit Banerjee, Esther Duflo and Raghabendra Chattopadhyay [pdf]
In this study, we evaluate how well various systems for identifying and targeting assistance to the poorest of the poor actually identify the poorest. Firstly, we consider the methods used to identify households eligible for participation in assistance programs administered by the Indian government. Secondly, we evaluate Participatory Rural Appraisals (PRAs) as a mechanism to identify exceptionally poor households. Finally, we investigate whether additional verification of information gathered in PRA’s (through a particular process used by an NGO) can refine the identified sub-population to include the very poorest. For each method of targeting, we examine whether the households identified by that process are more disadvantaged according to several measures of economic well-being than households which were not identified (land holdings, consumption per capita, education, etc). We conclude that PRAs and PRAs coupled with additional verification successfully identify a population which is measurably poorer in various respects, while the standard government procedures do very poorly in this respect, and (based on this sample) seem to identify households which are not observably different than those who were not identified.
"The Fruits of Usury: Interest Rate Regulation and Agricultural Sector Development in United States History" [pdf]
Financial regulation is ubiquitous and is often justified as a means to promote economic development, but the economic implications of such regulation are not fully understood. This study considers how interest rate ceilings affected investment in agricultural capital and the tenure status of farms in the nineteenth century United States. Using within state variation in usury laws, I find that more restrictive laws lead to an economically meaningful reduction in agricultural investment. Additionally, the results pertaining to the tenure status of farms indicate that exacting usury laws reduce the share of owner- operated farms. This effect is especially pronounced for small farms, which is consistent with the notion that interest rate limits ration small-scale, risky farmers out of the credit market. To overcome the issue of omitted factors which may affect both legislation and agricultural outcomes, I employ an instrumental variables strategy. By isolating variation in usury laws associated with the historical presence of religious bodies, this study provides evidence of a causal channel from more permissive interest rate ceilings to greater agricultural investment and a more egalitarian ownership structure of agricultural land.