|
|
|
 |
 National Science
Foundation Award #0551273 |
 |
|
|
Doctoral Dissertation Research in Economics: Commitment Devices and Consumption Smoothing Over Illness in Western Kenya |
| |
| Investigator(s): |
Jonathan Robinson (PI)
|
| Sponsor: |
Princeton University, NJ 08544 6092583090
|
| Start Date/Expiration Date |
2006-02-01 to 2007-01-31 (amended 2006-01-23) |
| Awarded Amount to Date: |
$12,000 |
| Abstract: Poor households in developing countries are subject to considerable risk. Although the
Permanent Income Hypothesis (PIH) predicts that households will fully adjust consumption to
changes in permanent income and smooth consumption over changes in transitory income,
evidence suggests that both of these predictions may fail (Paxson, 1992; Fafchamps, Udry, and
Czukas, 1998).
The goal of this project is to identify the specific factors that might prevent households from
smoothing consumption over changes in transitory income and to evaluate the effectiveness of
two interventions designed to facilitate consumption smoothing. This project will focus
specifically upon income shocks caused by household illness.
As credit is rare in developing countries, one obvious reason that households may be unable to
smooth changes in transitory income is that they lack a secure place to save. The first goal of this
project will therefore be to provide a formal savings account to a randomly selected subset of
daily income earners.
Even with formal savings vehicles, however, households may be unable to save transitory income
if their preferences for consumption are time-inconsistent. The second goal of this project will be
to provide one of two types of commitment savings accounts to two randomly selected treatment
groups. The first group will be offered target accounts that will feature a strictly enforced selfchosen
weekly savings goal while the second group will be offered health accounts that will
encourage withdrawals for health expenditures but discourage withdrawals for all other purposes
by introducing relatively large withdrawal penalties for non-health purposes and eliminating such
penalties for health withdrawals.
This project will collect information on a variety of outcomes, including the difference in savings
between the treatment and comparison groups, the difference in the labor supplied between the
groups, and the extent to which the accounts serve to substitute for other, costlier types of income
smoothing (such as choosing to invest in lower-yielding but less risky assets). The most
important outcome, however, will be the differential responsiveness of consumption to transitory
income between the treatment and comparison groups. As this experiment is randomized at the
individual level, the effect of the standard savings accounts can be estimated directly from the
differential responsiveness between the standard savings and comparison groups and the effect of
the commitment savings accounts can be estimated from the differential responsiveness between
the commitment savings and standard savings groups.
Intellectual Merit
This project will be of academic interest for several reasons. First, it will provide experimental
evidence on the specific mechanisms by which the Permanent Income Hypothesis tends to fail.
Second, it will add to the growing literature on the empirical relevance of commitment savings
accounts. Third, it will test the responsiveness of consumption to transitory changes in income
due to health shocks, in contrast to most studies which focus upon shocks to agricultural income
caused by changes in rainfall.
Broader Impact
The results obtained from this research could potentially also have valuable policy implications.
First, providing such accounts could represent a novel approach in designing savings accounts in
developing countries and in developing risk-coping mechanisms for poor households. Second, to
the extent that the accounts allow households to medically treat illness and so increase their labor
income, the accounts could represent a specific mechanism for increasing income by improving
health. |
|
| NSF Org: |
SES - Division of Social and Economic Sciences |
| Award Number: |
0551273 |
| Award Instrument: |
Standard Grant |
| Program Manager: |
Daniel H. Newlon
SES Division of Social and Economic Sciences
SBE Directorate for Social, Behavioral & Economic Sciences
|
| NSF Program(s): |
ECONOMICS |
| Field Application(s): |
|
| Program Reference Code(s): |
UNASSIGNED, 0000 |
| Program Element Code(s): |
1320 |
|
|
| |
 |
|
|
|
|
|
|
|
