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| IPA in the News |
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Research conducted by IPA Affiliate Researchers used by Obama Administration to encourage changes in Behavior
Time.com Learn More
IPA partners with a local bank in the Philippines to create a savings program that encourages smokers to quit smoking.
Newsbreak.com
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New Papers |
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Group versus Individual Liability: Long Term Evidence from Philippine Microcredit Lending Group
By Xavier Gine & Dean Karlan Read
From Violence to Voting: War and Political Participation in Uganda
By Chris Blattman Read
Financial Literacy, Information and Demand Elasticity: Survey and Experimental Evidence from Mexico
By Justine Hastings & Lydia Tejada-Ashton Read
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Observing Unobservables: Identifying Information Asymmetries with a Consumer Credit Field Experiment
By Dean Karlan & Jonathan Zinman Read |
Please check out IPA's website for more news about our research, our blog, and recent publications.
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Using Behavioral Economics to Fight Poverty More Effectively |
Most classic economics models rely on an assumption that human beings are uber-rational utility-maximizing calculators. Yet from Kenya to Peru to the United States, we see people m ake seemingly poor decisions about saving, borrowing, health, and education. It probably doesn't come as much of a surprise that habit, lack of willpower, information overload, and other very normal human limitations will cause anyone short of a rationality robot make the occasional bad decision.
To build more effective anti-poverty programs, policymakers need to understand how and why people behave in ways not predicted by old theories. IPA Research Affiliates are testing tweaks in the design of financial products, government projects, and other programs in developing countries to see if behavioral theory can be harnessed to help people make better financial decisions.
The field of behavioral theory is only beginning to have enough empirical evidence to make recommendations about which designs are effective and which are not. IPA is at the forefront of providing new evidence to close this understanding gap. Conducting randomized evaluations is one of the best ways to isolate the impact of programs, and to help in understanding why people respond to programs in a certain way.
Want to learn more about behavioral theory and economics?
Check out Nudge, Predictably Irrational, Economic Gangsters
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CARES and Smoking Cessation |
 People don't always follow intentions with action, even when they are sincere in wanting what is best for themselves and their families. Quitting smoking is a classic example of a goal that many people genuinely aim toward, but need a little help to achieve. IPA Research Affiliates Dean Karlan and Jonathan Zinman, along with Xavier Giné of the World Bank designed a commitment contract that provides financial incentives to quit smoking in cooperation with Green Bank of Caraga, a rural bank in the Philippines.
In CARES (Committed Action to Reduce and End Smoking) smokers who wish to quit smoking are encouraged to deposit an increasing percentage of the money they ordinarily spend on cigarettes into a savings account for six months. The client cannot withdraw any of the money during the deposit period; the balance is at stake if the client should fail to quit. At the end of six months, the client submits to a urine test to confirm smoking cessation. Only by passing the test can he or she access the money in the account. Otherwise, the money donated to a charity.
Smokers randomly offered CARES were approximately 3 percentage points more likely to pass the test than the control group (a 39% increase). Surprise tests another 6 months after the account was closed indicate that the account produced lasting cessation, as those offered CARES were still at least 3 percentage points more likely to pass than the control group.
To read the paper associated with this project, go to "Put Your Money Where Your Butt Is". |
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Bednets for Free, or With a Fee? |
 Sleeping under a treated bednet is an effective way to prevent malaria. Will charging a fee for these bednets reduce illness more than handing them out for free? Some argue that charging for health programs will increase their effectiveness, because those who pay for something will value it and use it more than those who receive it for free. This is predicted as a result of both a selection effect (it's the people who value the bednets who will pay for them), and a psychological "sunk cost" effect, which may make people actually more likely to use the good because they paid for it. On the other hand, even if charging increases usage intensity, it could still decrease the overall effectiveness of an anti-malarial campaign if the fee significantly reduces demand.
A clear and careful analysis of these tradeoffs is critical to ensure that health interventions have the maximum impact on health outcomes. In a project conducted in Western Kenya, IPA Research Affiliate Pascaline Dupas and Jessica Cohen of the Brookings Institution studied the impact of distributing long-lasting insecticide-treated mosquito nets (LLINs) to pregnant women through prenatal clinics at randomly varying prices. In the first stage of the evaluation, treatment clinics offered bednets at a subsidized rate that varied randomly from 85 to 100 percent. In the second stage, clinics also randomly offered a further discount to women who had already chosen to buy the net, which allowed separate estimation of the selection and sunk cost effects.
Dupas and Cohen found no evidence that fees increased the likelihood of usage or reduced waste. They also found no evidence that cost-sharing induces selection of women who need the net more: those who pay higher prices appear no sicker than the prenatal clients in the control group. Cost-sharing does, however, considerably dampen demand. Take-up drops by 75 percent when the price of LLINs increases from zero to $0.75, the price at which LLINs were sold to pregnant women in Kenya at the time of the study. Overall, the results suggest that free distribution is both more effective and more cost-effective than cost-sharing.
To read the paper associated with this project, go to "Free Distribution Versus Cost-Sharing" |
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Staff Profile: Rean Zarsuelo, Philippines |
Rean is a Project Associate with IPA in the Philippines. She has mana ged projects on commitment savings, the impact of microcredit, and interest rate sensitivity; and has a BS Statistics Cognate in Ecology in University of the Philippines Los Banos and an MS in Environmental Science and Ecosystem Management in De La Salle University.
Q: When did you start working with IPA, and why did you want to be involved?
Rean: I got on board in August 2006. I wanted be part of an organization where there is an avenue to use and develop my skills, and they were looking for someone who has background in statistics and knows how to manage a survey.
Q: What is the most interesting project you've done with IPA, and why?
Rean: Commitment Savings with First Valley. That was my first assignment away from home and I was able to manage marketers and monitor how the survey goes. I think the kind of responsibility for being able to handle a project and doing data work challenged me. I also learned a lot from this project by being able to understand the behavior of some individuals in savings and at the same time, we had a high take up rate [for the savings product].
Q: How did you work with First Valley to make sure that they understand and can benefit from the project?
Rean: The best thing that we can offer partners is the data that we are gathering. By analyzing the data, we can make suggestions on how the current program is doing and how the partners can improve [their] programs. Based on what I've observed, incentives are a big factor in the project's success. In the commitment savings project we require account officers to collect deposits from the households every day. We encountered some problems with compliance because of a lack of incentives. AOs perform their duty better if there is a proper incentive system in place.
Q: Have you seen partner organizations change the products or the incentives they offer in response to IPA's research?
Rean: I know many of our partners are open to changes. Partners definitely consult us on improving their incentive systems. On IPA's part, I think we can always learn more about communicating well with partners - sometimes the technical analysis is difficult. But in the end there is usually a way for us to help them understand what we are trying to do. |
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