Targeting High Ability Entrepreneurs Using Community Information: Mechanism Design in The Field (Job Market Paper) (with Reshmaan Hussam and Benjamin Roth)
Abstract: Microentrepreneurs in low-income countries have high marginal returns to capital yet face significant credit constraints. Because returns are highly heterogeneous, the cost of assessing credit worthiness often makes lending to this sector unprofitable. In this paper, we show that (1) community knowledge can help overcome information asymmetries prevalent in poorly developed financial markets and that (2) appropriately designed elicitation mechanisms can extract truthful community reports. We asked entrepreneurs in Maharashtra, India to rank their peers on metrics of business profitability and growth potential. To assess the validity of their reports, we then randomly distributed cash grants of USD 100 to a third of these entrepreneurs. We find that information provided by community members is highly predictive of the marginal return to capital: entrepreneurs ranked in the top tercile earn returns of 23% per month, which is three times the average return within the sample. We horserace community rankings against a machine learning prediction built using entrepreneur characteristics and find that peer reports are predictive over and above observable traits. Yet community information is only useful if it is feasible to collect truthful statements. We experimentally vary the elicitation environment and demonstrate agency problems when community members have incentive to lie: accuracy of community reports decreases by a third when cash grants are at stake. But we also show that tools from mechanism design can be used to address these agency problems. Paying for truthfulness using a peer prediction rule fully corrects for strategic misreporting induced by the high-stakes environment. Public reporting and cross-reporting techniques motivated by implementation theory also significantly improve the accuracy of peer reports.
Habit Formation and Rational Addiction: A Field Experiment in Handwashing (with Reshmaan Hussam, Giovanni Reggiani, and Atonu Rabbani)
Abstract: Regular handwashing with soap is believed to have substantial impacts on child health in the developing world. Most handwashing campaigns have failed, however, to establish and maintain a regular practice of handwashing. Motivated by scholarship that suggests handwashing is habitual, we design, implement and analyze a randomized field experiment aimed to test the main predictions of the rational addiction model. To reliably measure handwashing, we develop and produce a novel soap dispenser, within which a time-stamped sensor is embedded. We randomize distribution of these soap dispensers as well as provision of monitoring (feedback reports) or monitoring and incentives for daily handwashing. Relative to a control arm in which households receive no dispenser, we find that all treatments generate substantial improvements in child health as measured by child weight and height. Our key test of rational addiction is implemented by informing a subset of households about a future boost in monitoring or incentives. We find that (1) both monitoring and incentives increase handwashing relative to receiving only a dispenser; (2) these effects persist after monitoring or incentives are removed; and (3) the anticipation of monitoring increases handwashing rates significantly, implying that individuals internalize the habitual nature of handwashing and accumulate habit stock accordingly. Our results are consistent with the key predictions of the rational addiction model, expanding its relevance to settings beyond what are usually considered "addictive" behaviors.
Household Matters: Returns to Capital among Female Microentrepreneurs (with Arielle Bernhardt, Erica Field and Rohini Pande) Submitted.
Abstract: Several field experiments find positive returns to grants for male and not female micro-entrepreneurs. But these analyses overlook that female entrepreneurs often reside with a male business owner. Using data from randomized trials in India, Sri Lanka and Ghana, we show that the gender gap in microenterprise performance is not due to a gap in aptitude. Instead, low average returns of female-run enterprises reflects the fact that women's capital is typically invested into their husband's enterprise. Household-level income gains are equivalent regardless of the grant or loan recipient's gender.
On Her Account: Can Strenthening Women's Financial Control Boost Female Labor Supply? (with Erica Field, Rohini Pande, Natalia Rigol, and Charity Troyer Moore)
Abstract: In collaboration with the state government of Madhya Pradesh, we experimentally varied whether women’s wages from India’s public workfare program were deposited into female-owned bank accounts instead of into the male household head’s account (the status quo). This treatment increased women’s work, both in the program and in the private sector, despite no change in market wages. Treatment effects are concentrated among two groups of women: those who had not previously worked for the program and those whose husbands disapprove of women working. These results are at odds with a model of household behavior in which labor force participation decisions only depend on wages and own-preference for leisure. Instead, we argue that they are consistent with a model in which gender norms internalized by men limit women’s labor market engagement.
Paying for the Truth: The Efficacy of Peer Prediction in the Field (with Benjamin Roth)
Abstract: There is increasing consensus among development economists that community information is valuable for targeting, and that incentives for accuracy may be a vital part of elicitation. We make an empirical case for peer prediction– a class of mechanisms that overcome many practical difficulties traditional monetary incentives face. Peer prediction allows payments to be contemporaneous with the initial report, reducing surveying costs and eliminating the possibility that respondents don’t trust surveyors to return with remuneration. The primary tradeoff is that peer prediction is complicated to explain in practice, and incentive compatibility relies on assumptions that may not hold empirically. We report results from a lab-in-the-field experiment in Maharshtra, India in which we compare peer prediction to a simple payment rule relying on ex-post accuracy. Farmers were asked questions about their neighbors and were told that their reports would be used to determine cash prizes. Both payment rules result in comparable improvement in accuracy. Importantly, by imposing structure on the data we also find evidence that one peer prediction mechanism is incentive compatible given empirically estimated subjective beliefs; respondents maximize their subjective expected utility by reporting truthfully. This bodes well for situations that require the repeated use of monetary incentives to promote accurate responses – the message that respondents can do no better than to tell the truth will be reinforced with repeated play. Given the broad applicability and the ease of implementation of peer prediction, we hope that this experiment will serve as a catalyst to verify its usefulness in other contexts.
Research in Progress
Market and Person-Level Impacts of G2P Payments in Bangladesh (with Reshmaan Hussam and Benjamin Roth) In the field.
Abstract: We evaluate the impact of a large-scale government to people (G2P) digital payments platform on the welfare of recipient households and on financial markets in Bangladesh. With our implementing partners, the Department of Social Services and a2i, we have designed a randomized controlled trial which tests three specific hypotheses related to digital G2P payments: (1) Digital G2P payments encourage broader engagement with formal financial services; (2) Digital payments to women can help close the gender gap in financial services; (3) G2P payments can expand the payments network by guaranteeing transaction volume. In Phase 1, we will randomize digital pension payments across 140 unions (a union is a government unit that comprises 5-10 villages; a total of 150,000 pensioners will be impacted). Within the 70 treatment unions, we will additionally run a household level randomization to test the optimal design of the digital platform. In Phase 2, we will incorporate lessons learned regarding optimal G2P design and randomly deliver this optimal platform to the existing treated unions and an expanded sample of 1500 unions. This randomization will allow us to analyze how a large expansion of G2P payments impacts financial markets.
Mobile Phone Based Interactive Voice Response System to Improve Financial Inclusion (with Erica Field, Rohini Pande, and Simone Schaner, and Charity Troyer Moore) In the field.
Abstract: The Government of India’s ambitious Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme has opened over 226 million new bank accounts since its inception in August 2014, with the aim of drawing India’s unbanked rural poor into the formal financial system. Although this is an impressive achievement, many of these accounts are dormant, or are only used to receive government benefits. Thus, significant barriers to financial inclusion remain: Low financial literacy rates, especially among women, result in discomfort with new technologies used by last-mile banking kiosks, such as fingerprint readers. Moreover, banking kiosk operators often hold an informational monopoly on account details, as illiterate individuals cannot read transaction receipts. Hence, the rural poor still lack a transparent, verifiable, easily understood way to access information about account balances and the timing of direct deposit transfers. Given the deep mobile phone penetration in rural India and the fact that even low-literacy individuals regularly use the basic calling functions of mobile phones, can mobile technology facilitate access to and improve the quality of financial services for the rural poor? In this project, we partner with a large public Indian bank to test an interactive voice response (IVR) system to give low-income, low-financial-literacy individuals information on account transactions and government benefits receipt.
Building Trust: Implementing Agricultural Contracts in the Absence of Legal Enforcement (with Arielle Bernhardt, Reshmaan Hussam, and Benjamin Roth) Pilot in the field.
Abstract: We partner with Organic Mountain Flavor (OMF), a company that connects local Nepalese ginger farmers to the global market for organic dry ginger, to design and evaluate agricultural contracts that help ginger farmers smooth their income through price and purchase guarantees. Because such guarantees are reciprocal – farmers need to accept below market prices in years when demand is high – it is critical for OMF to establish a reputation as a long-term, trustworthy organization among ginger farmers who have no prior experience working with them. In this project, we evaluate various methods for establishing trust between OMF and new clients – using agricultural credit, community enforcement, or fixed investments – in rural Nepal, where legal enforcement of contracts is not possible.
Understanding Barriers to and Impacts of Women's Cell Phone Adoption in India (with Erica Field, Rohini Pande, and Simone Schaner, and Charity Troyer Moore) In the field.
Abstract: Despite the rapid spread of mobile technology across India, recent data suggest India’s women are being left behind. Only 28% of Indian women own a mobile phone as compared to 43% of men, and women account for just a quarter of all Facebook accounts in India. If mobile technologies are crucial to participation in the modern economy, there is a risk that India’s gender gap in mobile ownership will exacerbate pre-existing gender gaps in other areas and hinder economic growth. We evaluate the impact of programs that leverage social networks to affect norms governing women’s and girls’ use of mobile technology and that create economic incentives for women’s mobile ownership.
Increasing the Impact of the National Rural Employment Guarantee Scheme by Identifying Corruption and Reducing Leakages in Electronic Payments (with Erica Field, Rohini Pande, and Simone Schaner, and Charity Troyer Moore) Field work completed.
Abstract: Electronic payment technologies are currently heralded as a panacea to corruption in public programs since, in theory, when benefits are transferred directly to beneficiaries’ accounts opportunities for leakage are dramatically reduced. But evidence has shown that while electronic payments are beneficial, they are not a cure-all (Muralidharan et al. 2014). In this project, we use a randomized control trial (reported on in Field at al. 2016) which varied the delivery mechanism of government to person (G2P) payments to understand how design features may differentially impact vulnerable groups and may unintentionally incentivize new forms of corruption. By carefully and systematically tracking fund movements between governments at the central, state, and local level, and between banks and beneficiaries, we trace how corruption varies across payment schemes. In the process, we also provide some of the first rigorous evidence on how women are affected – both within the household and in relationship to the local government – by payment technologies.
Liquidity and Enterprise Growth: Theory and Evidence from the Indian MFI Crisis and a Long-Run Repayment Flexibility Experiment (with Erica Field and Rohini Pande) Fieldwork completed.
Abstract: This study explores the long-run impacts on modifications to the classic microfinance contract, business growth, and transition to SME status. This research project uses a seven-year panel dataset that builds on two randomized controlled trials conducted in Kolkata, India beginning in 2006. The RCTs modified the classic microfinance contract – first by offering clients a two-month grace period for loan repayment and second by requiring clients to attend weekly group meetings. The grace period intervention fostered significant business growth, including a 13% transition to SME status. We track the evolution of these microenterprises over an extensive timeframe and explore: (1) determinants of growth into SME status, (2) persistence of business size differences across treatment and control groups, and (3) comparative performance and entrepreneurial behavior differences between male and female-managed enterprises. These findings will provide new insights on the roles of contract design and individual characteristics in influencing business growth.
Predicting Credit Worthiness through Digital Engagement with Financial Education Platforms (with Bilal Zia)
Abstract: Access to finance remains one of the most significant constraints to the growth and productivity of micro, small, and medium-sized enterprises (MSMEs); at least 200 million MSMEs in developing countries still have unmet credit needs totaling an estimated US$2.2 trillion. Lenders often lack sufficient financial information about MSMEs to make a credit risk assessment and as a result refuse to lend. In this study, we propose a new and unique method of assessing credit worthiness of clients in developing countries: engagement patterns with digital financial education platforms. We partner with a leading digital financial education provider in East Africa, Arifu, which is dedicated to developing and delivering target-specific financial education content that is both easy to use and understand and at the same time stimulating and engaging. We will use the plethora of information collected by Arifu to generate credit scores for individuals and businesses. We will test the validity of this credit scoring mechanisms by randomly allocating loans and measuring how well credit scores predict default and the marginal returns to capital.