Follow the money not the cash: Comparing methods for identifying consumption and investment responses to a liquidity shock

Abstract

Measuring the impacts of liquidity shocks on spending is difficult methodologically but important for theory, practice, and policy. We compare three approaches for tackling this question: directly asking borrowers how they spend proceeds from a loan (direct elicitation); asking borrowers using a list randomization technique (indirect elicitation) that allows them to answer discretely in cases where loan uses are at odds with lender policies or social norms; and, a counterfactual analysis in which we compare household and enterprise cash outflows for those in a treatment group, randomly assigned to receive credit, to a control group. The counterfactual analysis yields an estimate that about 100% of loan-financed spending is on business inventory. For the direct and indirect elicitations, we find evidence of both strategic misreporting and "following the cash": borrowers likely report what they physically did with cash proceeds, rather than counterfactual spending.

COVID-19 and the future of microfinance: evidence and insights from Pakistan

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Access to micro- and informal loans: Evaluating the impact on the quality of life of poor females in South Africa

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Reported Effects vs. Revealed-Preference Estimates: Evidence from the propensity to spend tax rebates

“…Our paper's closest predecessors are Hainmueller, Hangartner and Yamamoto (2014) and Karlan, Osman and Zinman (2016). Karlan, Osman and Zinman (2016) finds that reported spending is biased relative to revealed-preference estimates and interprets this finding as due to strategic responses that are specific to the incentives in the micro-credit setting of the study.…”

“…Our paper's closest predecessors are Hainmueller, Hangartner and Yamamoto (2014) and Karlan, Osman and Zinman (2016). Karlan, Osman and Zinman (2016) finds that reported spending is biased relative to revealed-preference estimates and interprets this finding as due to strategic responses that are specific to the incentives in the micro-credit setting of the study. Our evaluation of reported behavior also relates to the analysis of reported probabilities (as in Manski, 2004Manski, , 2017, to the use of reported willingness to pay in environmental economics (see Diamond and Hausman, 1994;List and Shogren, 1998;Harrison and Rutström, 2008), and to conjoint analysis in marketing (see Juster, 1966, andRao, 2014).…”