Demand and Supply of Infrequent Payments as a Commitment Device: Evidence from Kenya

Abstract

Despite extensive evidence that preferences are often time-inconsistent, there is only scarce evidence of willingness to pay for commitment. Infrequent payments for frequently provided goods and services are a common feature of many markets and they may naturally provide commitment to save for lumpy expenses. Multiple experiments in the Kenyan dairy sector show that: (i) farmers are willing to incur sizable costs to receive infrequent payments as a commitment device, (ii) poor contract enforcement, however, limits competition among buyers in the supply of infrequent payments. We then present a model of demand and supply of infrequent payments and test its additional predictions. (JEL K12, L66, O13, O17, Q12, Q13)

Alcohol and Self-Control: A Field Experiment in India

“…However, their influence on the results below was negligible, in particular because these individuals already saved high amounts in the unincentivized Phase 1, which the regressions control for. 14 A notable exception is the recent evidence in Casaburi and Macchiavello (2019) who find that a vast majority of a sample of Kenyan dairy farmers were willing to accept 15 percent lower output prices in exchange for lowering the frequency of their output payments. 15 Attrition and inconsistencies of decisions during the choice session pose relatively minor concerns for the analysis (online Appendix Table A.5).…”

Alcohol and Self-Control: A Field Experiment in India

“…14 A notable exception is the recent evidence in Casaburi and Macchiavello (2019) who find that a vast majority of a sample of Kenyan dairy farmers were willing to accept 15 percent lower output prices in exchange for lowering the frequency of their output payments. 15 Attrition and inconsistencies of decisions during the choice session pose relatively minor concerns for the analysis (online Appendix Table A.5).…”

Why Do Defaults Affect Behavior? Experimental Evidence from Afghanistan

“…The similarity of our results to those in developed countries provide additional evidence the default effect is a very general phenomena. 6 Second, our controlled environment makes it possible to investigate outstanding questions about default effects, including the "price" of the default relative to financial incentives and the impact of defaults on savings attitudes future savings decisions. Our design also allows exploration of the mechanisms underlying the default, which together highlight the cognitive cost of deciding how much to save and the role of present-bias in the persistence of default effects.…”

“…According to the 2016 World Development Indicators, Afghanistan has a per capita GDP (PPP-adjusted) of $1,877, ranking 156 out of 175 countries. According to Transparency International's 2016 Corruption Perceptions Index, Afghanistan ranks 169 out of 176 6. However, two important caveats are in order.…”