My research applies behavioural models to topics in development economics, such as microfinance, education, and health. I am particularly interested in the impact of time preferences, self-control, and commitment on individuals' lives. My methodology of choice are randomized field experiments that are firmly grounded in economic theory.
Commitment products can remedy self-control problems. However, imperfect knowledge about their preferences may (discontinuously) lead individuals to select into incentive-incompatible commitments, which reduce their welfare. I conduct a field experiment where low-income individuals were randomly offered a new installment-savings commitment account. Individuals chose a personalized savings plan and a default penalty themselves. A majority appears to choose a harmful contract: While the average effect on bank savings is large, 55 percent of clients default, and incur monetary losses. A possible explanation is that the chosen penalties were too low (the commitment was too weak) to overcome clients' self-control problems. Measures of sophisticated hyperbolic discounting correlate negatively with take-up and default, and positively with penalty choices – consistent with theoretical predictions that partial sophisticates adopt weak commitments and then default, while full sophisticates are more cautious about committing, but better able to choose incentive-compatible contracts.
We test the effect of light-touch psychological interventions on water chlorination and related health and psychological outcomes using a randomized controlled trial among 3750 young women in rural Kenya. We randomly allocate participants to two light-touch psychological interventions: one targeting planning skills (executive functions); and one targeting present bias and impatience (time preferences). A third group received only information about the benefits of chlorination, and a pure control group received no intervention. Ten weeks after the interventions, the time preferences and executive function interventions led to significant 27 and 18 percent increases, respectively, in the share of households who chlorinated their drinking water, compared to the pure control group. This increase was accompanied by significant 25–26 percent (executive function) and 35–38 percent (time preferences) reductions in the number of child diarrhea episodes relative to both placebo and control. The time preferences intervention also significantly increased participants' savings per week by 26 percent. We further study the psychological channels through which effects occur. The executive function intervention did not affect lab measures of planning, and the time preferences intervention did not affect choices in lab discounting tasks. However, both interventions increased self-efficacy, i.e. beliefs about one's ability to achieve desired outcomes. We show effects are not driven by changes in information about the benefits of chlorination. Together, these results suggest that low self-efficacy may be a psychological barrier to health behavior.
Flexible repayment schedules are receiving increased attention because they allow borrowers to invest in profitable yet risky projects. Loan repayment is affected both through ex-ante project choice, and through ex-post repayment decisions (ex-post moral hazard). These are difficult to disentangle in the field. In joint-liability group lending, high repayment rates are sustained by peer pressure, which has been shown to be excessive in practice. We study strategic repayment choices and social pressure in rigid and flexible loan contracts. Using data from lab-in-the-field experiments with microcredit borrowers in the Philippines, we separately observe strategic repayment choices, income shocks, and social pressure. Repayment without flexibility is much higher than predicted under simple maximization of monetary expected values. Repayment flexibility reduces excessive social pressure in lending groups significantly, but it comes at the cost of reduced loan repayment. Using a theoretical framework, we argue that our results are best explained by a strong social norm for repayment that is weakened by the introduction of discretion in repayment timing. Our results imply that cooperative behavior determined by social norms may erode if the applicability of these norms is not straightforward.
Youth participation in programs designed to enhance their employability is usually low. This paper reports the results from a large randomized experiment in which young, unskilled jobseekers in France receive a monthly cash transfer for a two-year period totaling up to €4,800, conditional on their participation in the French national career guidance program. Cash transfers lead to a significant increase in program participation (which mainly entails meetings with counselors), and sharply reduced drop-out rates. As a result, there is a large increase in the job offers, vocational training and career building workshops proposed to the young jobseekers. However, the jobseekers' response to these increased opportunities for employability investment is a precisely estimated zero. Moreover, we observe a significant reduction in employment over the first six months and only a minor increase in income. The results point to a strong impact of financial incentives, but also to the need to design more sophisticated incentive schemes if the goal is to improve employability investments.
Empirical evidence from developing countries suggests that there is a high demand for informal savings mechanisms even though these often feature negative returns - such as deposit collectors, ROSCAs, microloans, and informal borrowing. Why do people not just save at home, instead of relying on such costly devices? In a savings model with hyperbolic discounting and uncertainty, I show why a commitment to fixed regular savings deposits can help individuals to achieve the welfare-maximising level of savings, when they would not be able to do so on their own. Such regular-instalment commitment products further increase welfare by smoothing savings contributions. The setting is enriched by endogenising take-up, and giving individuals the ability to choose their own commitment stakes. The results point to the possibility that the observed demand for costly informal savings devices may simply represent a demand for commitment savings products with fixed periodic contributions, as they are commonly offered by banks in rich countries.
with Gautam Rao and Nishith Prakash
with Frédéric Schneider
with Justin Sydnor and
with Eric Mengus, Tomasz Michalski, and Frédéric Schneider
with Stefan Dercon and Karlijn Morsink
In light of the United Nations' latest urbanization projections, particularly with respect to China and India, a good understanding is needed of what drives aggregate urbanization trends. Yet, previous literature has largely neglected the issue in favor of studying urban concentration. Taking advantage of the latest UN World Urbanization Prospects, we use an instrumental variables approach to identify and analyze key urbanization determinants. We estimate the impact of GDP growth on urbanization to be large and positive. In answer to Henderson's (2003) finding that urbanization does not seem to cause growth, we argue that the direction of causality runs from growth to urbanization. We also find positive and significant effects of industrialization and education on urbanization, consistent with the existence of localization economies and labor market pooling.
The paper argues that the incidence of moral hazard played a significant role in the 2007/2008 credit crunch. In particular, bank traders subjected to asymmetric compensation structures have an incentive to take excessive risks even when the bank's shareholders would prefer prudent investment. Traders' incentives are shown to be unaffected by capital regulations, with the associated financial burden falling upon the taxpayer through deposit insurance or government bail-outs. Selected case studies further indicate that the phenomenon of “gambling traders” was widespread during the credit crunch, when high bonuses tempted bank employees to invest in risky subprime-backed securities. The intransparency of structured products and the inaccuracy of credit ratings contributed to the employees' ability to conceal the underlying risk from the banks' shareholders. The analysis points to an urgent need to reform compensation practices in the financial sector.
Current Teaching (2017/18)
All teaching materials can be found on Pamplemousse.
Econometric Evaluation of Public Policies (ENSAE, Paris-Saclay)
Joint with Bruno Crépon
Development Economics (ENSAE, Paris-Saclay)
Joint with Jean-Noël Senne
Experimental and Behavioural Economics (ENSAE, Paris-Saclay)
Joint with Guillaume Hollard
Term time: By appointment (ENSAE, Office 4043).