Karlan and Appel (2011) on Buying or Not Buying

Dean Karlan and Jacob Appel, “To Buy: Doubling the Number of Families with a Safety Net.” Chapter 3, pages 39-54, in More than Good Intentions: Improving the Ways the World's Poor Borrow, Save, Farm, Learn, and Stay Healthy, New York: Dutton, 2011. [Also see this Q&A with the authors at the Freakonomics blog.] 

• For a successful anti-poverty policy, you need an intervention that reduces poverty, of course; but further, you need your intervention to be taken up by the targeted poor people. Many policies that “work” do not achieve high levels of take-up, including oral rehydration therapy (for protection against the effects of diarrhea), and ant-malarial mosquito nets. 

• Behavioral economist Sendhil Mullainathan talks about “The Last Mile Problem,” the relative neglect of take-up after the intervention has been designed. 

• Decisions to borrow money are influenced by far more factors than the interest rate. Randomized controlled experiments indicate that a photo of a pretty woman on loan informational material makes it more likely that men will borrow, and providing but one instead of four sample loans helps, too. In-person meetings, especially when introduced by a trusted acquaintance, doubles take-up. 

• In another randomized controlled experiment, a cell phone giveaway did not increase borrowing; indeed, that promotion had a perverse impact. 

• Choice overload leads to “I’ll think about it tomorrow”- type responses. 

• Rainfall insurance for poor farmers in India is woefully undersubscribed, although (so Karlan and Appel assert) very beneficial.

Karlan and Linden (2014) on Savings for Education in Uganda

Dean Karlan and Leigh L. Linden, “Loose Knots: Strong versus Weak Commitments to Save for Education in Uganda [pdf].” NBER Working Paper No. 19863, January 2014.

• Low threshold commitment devices (loose knots) might attract more participants, but not lead to as much behavior change as would stronger commitments. 

• A field experiment involved 136 rural or near-rural primary schools in Uganda. Some schools were given a “strong” commitment savings product – withdrawals took the form of vouchers that could be used only to purchase school supplies; other schools received a weaker (loose knots) version, where withdrawals could be made in cash and spent on anything. 

• Students deposited more money in the soft commitment account than in the hard commitment account, which led to more school supplies purchased and better test scores. 

• The savings account employed a double-locked lock box kept at the school, with the funds transferred to a bank at the end of a trimester. The accounts earned no interest, despite significant inflation. The savings decisions were taken in public. 

• When disbursements were made from the accounts, a small market was set up at each school to sell school supplies, tutoring, etc. With vouchers, this market provided the only legitimate use for the savings (other than re-deposit.) 

• Parent outreach does not affect savings, but it helps direct saved funds towards education. The loose knot (cash) accounts with parent outreach formed the preferred treatment in terms of incentivizing the purchase of more school supplies. 

• This commitment savings intervention was very costly to implement relative to the increased savings.

Giné, Karlan, and Zinman (2010) on Committing to Quit Smoking

Xavier Giné, Dean Karlan, and Jonathan Zinman, “Put Your Money Where Your Butt Is: A Commitment Savings Account for Smoking Cessation.” American Economic Journal: Applied Economics 2(4): 213-235, January 2010.

• Likely heavy smokers were randomly chosen to be offered a “Committed Action to Reduce and End Smoking” (CARES) savings account. After six months, a urine test was given to indicate whether the saver had given up smoking. A failed test meant that the money in the account was forfeited. A second treatment involved giving smokers aversive cue cards as opposed to the opportunity to open a CARES account. 

• CARES accounts were accompanied by weekly visits from a bank employee to collect additional deposits. Participants were urged to save the money they otherwise would have spent on cigarettes. The deposit collection seemed to be important for getting people to take up CARES. 

• Only eleven percent (a total of 83) smokers offered CARES signed up. Smokers randomly offered CARES were a bit more likely to pass a second, surprise urine test after one year. (That is, most did not quit smoking, but quit rates were about 1/3 higher than for smokers not offered CARES.) The cue cards didn’t help induce smoking cessation, though almost everyone who was offered the cards took them. 

• About 2/3 of CARES clients lost their deposits by failing the urine test. They tended to have lower deposits, though, and may have cut down on their smoking (and spending on smoking), even if they didn’t quit. Is it ethical to offer relatively poor people a commitment savings account in the fore-knowledge that many of them will end up unable to collect their savings?

Ashraf, Karlan, and Yin (2006), on Commitment Savings Accounts

Nava Ashraf, Dean Karlan, and Wesley Yin, “Tying Odysseus to the Mast: Evidence From a Commitment Savings Product in the Philippines.” Quarterly Journal of Economics 121(2): 635-672, 2006.

• The authors conduct a natural field experiment to see if people will open a savings account that has no advantages except for barriers to withdrawal. The offered SEED accounts (“Save, Earn, Enjoy Deposits”) prevent depositors from accessing funds unless a target deposit amount or date is met. Most of the participants who opened accounts chose the date-based method. 

• Individuals were randomly chosen to be offered a SEED account, and about 28% of those who received the offer accepted it. Others were offered nothing or were given encouragement to save more. All the people involved were bank clients who already had a regular savings account. 

• All participants were given a survey aimed at identifying customers who had time inconsistent preferences. The survey indicated that 27.5% of respondents were hyperbolic, while a surprising 19.8% were reverse hyperbolic, more patient today than for future choices. Hyperbolic women (but not men) are more likely to take up the SEED offer. 

• The Intent to Treat (ITT) effect reveals the impact of being offered (not necessarily accepting) the SEED account. The ITT effect involved a significant increase in savings. (The encouragement-to-save option did not increase savings.) The Treatment on the Treated effect reveals the increase in savings for those who opened a SEED account relative to controls who would have opened one if offered; here, it is about four times higher than the ITT effect.

• Is it ethical to offer relatively poor people a type of savings account whereby it is more than conceivable that they will never be able to recover their funds because they did not reach their savings goal? After one year, only 6 of the 62 participants who opened an amount-based account achieved their goal and hence could access their funds (page 657).