Implicit and Explicit Commitment in Credit and Saving Contracts: A Field Experiment / Uzma Afzal, Giovanna D'Adda, Marcel Fafchamps, Simon R. Quinn, Farah Said.

Format:

Book

Author/Creator:

Afzal, Uzma.

Contributor:

National Bureau of Economic Research.

D'Adda, Giovanna.

Fafchamps, Marcel.

Quinn, Simon R.

Said, Farah.

Series:

Working Paper Series (National Bureau of Economic Research) no. w25802.

NBER working paper series no. w25802

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Implicit and Explicit Commitment in Credit and Saving Contracts

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

We conduct a field experiment to test the demand for flexibility and for soft and hard commitment among clients of a microfinance institution. We offer a commitment contract inspired by the rotating structure of a ROSCA. Additional treatments test ex ante demand for soft commitment (in the form of reminders), hard commitment (in the form of a penalty for missing an installment), and flexibility (an option to postpone an installment). Our design is unique in the literature for allowing us to test -- using the same respondent population -- how demand for explicit commitment features differs between loan and savings contracts. We find substantial demand for both credit and savings contracts but no demand for additional commitment features -- either in isolation or in combination -- in spite of their effectiveness in improving repayment. In particular, demand for savings is insensitive to explicit commitment features. Individuals offered loans actively dislike commitment and flexibility, unless the latter is combined with reminders. These findings complement a literature showing that commitment devices induce financial discipline. They show that demand for commitment depends on whether commitment features are implicit or explicit.

Notes:

Print version record

May 2019.