Assistant Professor (Lecturer)
Department of Economics, University of Birmingham
Affiliate, CREST and ENSAE Paris
PhD 2014, London School of Economics
My research applies behavioural models to topics in development economics, such as microfinance, human capital, and health. I am particularly interested in behavioural barriers to economic investment decisions. A strong past focus has been the impact of time preferences and self-control on individuals' lives. More recently, I am studying the importance of individuals' beliefs about themselves (captured in psychological concepts like agency and self-efficacy) for economic decisionmaking. Applications extend beyond developing countries to disadvantaged populations in high-income countries, such as unemployed youths in France. My methodology of choice are randomized field experiments that are firmly grounded in economic theory.
Commitment products can remedy self-control problems. However, imperfect knowledge about their preferences may (discontinuously) lead individuals to select into incentive-incompatible commitments, which reduce their welfare. I conduct a field experiment where low-income individuals were randomly offered a new installment-savings commitment account. Individuals chose a personalized savings plan and a default penalty themselves. A majority appears to choose a harmful contract: While the average effect on bank savings is large, 55 percent of clients default, and incur monetary losses. A possible explanation is that the chosen penalties were too low (the commitment was too weak) to overcome clients' self-control problems. Measures of sophisticated hyperbolic discounting correlate negatively with take-up and default, and positively with penalty choices – consistent with theoretical predictions that partial sophisticates adopt weak commitments and then default, while full sophisticates are more cautious about committing, but better able to choose incentive-compatible contracts.
Behavioral constraints may explain part of low demand for preventive health products. We test the effects of two light-touch psychological interventions on water chlorination and related health and economic outcomes using a randomized controlled trial among 3750 women in rural Kenya. One intervention encourages participants to visualize alternative realizations of the future; one builds participants' ability to make concrete plans. After 12 weeks, visualization increases objectively measured chlorination, reduces diarrhea episodes among children, and increases savings. Effects on chlorination and savings persist after almost three years. Effects of the planning intervention are weaker and largely insignificant. Analysis of mechanisms suggests both interventions increase self-efficacy – beliefs about one's ability to achieve desired outcomes. Visualization also increases participants' skill in forecasting their future utility (Gabaix and Laibson 2017). The interventions do not differentially affect beliefs and knowledge about chlorination. Results suggest simple psychological interventions can increase future-oriented behaviors, including use of preventive health technologies.
Flexible repayment schedules allow borrowers to invest in profitable yet risky projects, but practitioners fear they erode repayment morale. We study repayment choices in rigid and flexible loan contracts that allow discretion in repayment timing. Using a lab-in-the-field experiment with microcredit borrowers in the Philippines, we separate strategic repayment choices from repayment capacity, and thus identify moral hazard. We quantify social pressure, which is considered both central to group lending, and excessive in practice. In our rigid benchmark contract, repayment is much higher than predicted under simple payoff maximization. Flexibility substantially lowers both repayment and social pressure. Our results are consistent with a strong social norm for repayment, which is weakened by the introduction of flexibility. We support this interpretation with theoretical and empirical evidence. This implies that cooperative behavior determined by social norms may erode if the applicability of these norms is not straightforward.
Youth participation in programs designed to enhance their employability is usually low. This paper reports the results from a large randomized experiment in which young, unskilled jobseekers in France receive a monthly cash transfer for a two-year period totaling up to €4,800, conditional on their participation in the French national career guidance program. Cash transfers lead to a significant increase in program participation (which mainly entails meetings with counselors), and sharply reduced drop-out rates. As a result, there is a large increase in the job offers, vocational training and career building workshops proposed to the young jobseekers. However, the jobseekers' response to these increased opportunities for employability investment is a precisely estimated zero. Moreover, we observe a significant reduction in employment over the first six months and only a minor increase in income. The results point to a strong impact of financial incentives, but also to the need to design more sophisticated incentive schemes if the goal is to improve employability investments.
Empirical evidence from developing countries suggests that there is a high demand for informal savings mechanisms even though these often feature negative returns - such as deposit collectors, ROSCAs, microloans, and informal borrowing. Why do people not just save at home, instead of relying on such costly devices? In a savings model with hyperbolic discounting and uncertainty, I show why a commitment to fixed regular savings deposits can help individuals to achieve the welfare-maximising level of savings, when they would not be able to do so on their own. Such regular-instalment commitment products further increase welfare by smoothing savings contributions. The setting is enriched by endogenising take-up, and giving individuals the ability to choose their own commitment stakes. The results point to the possibility that the observed demand for costly informal savings devices may simply represent a demand for commitment savings products with fixed periodic contributions, as they are commonly offered by banks in rich countries.
with Martin Abel
with Frédéric Schneider
with Martin Abel
Bruno Crépon, Esther Mbih, and Arne Uhlendorff
In light of the United Nations' latest urbanization projections, particularly with respect to China and India, a good understanding is needed of what drives aggregate urbanization trends. Yet, previous literature has largely neglected the issue in favor of studying urban concentration. Taking advantage of the latest UN World Urbanization Prospects, we use an instrumental variables approach to identify and analyze key urbanization determinants. We estimate the impact of GDP growth on urbanization to be large and positive. In answer to Henderson's (2003) finding that urbanization does not seem to cause growth, we argue that the direction of causality runs from growth to urbanization. We also find positive and significant effects of industrialization and education on urbanization, consistent with the existence of localization economies and labor market pooling.
The paper argues that the incidence of moral hazard played a significant role in the 2007/2008 credit crunch. In particular, bank traders subjected to asymmetric compensation structures have an incentive to take excessive risks even when the bank's shareholders would prefer prudent investment. Traders' incentives are shown to be unaffected by capital regulations, with the associated financial burden falling upon the taxpayer through deposit insurance or government bail-outs. Selected case studies further indicate that the phenomenon of “gambling traders” was widespread during the credit crunch, when high bonuses tempted bank employees to invest in risky subprime-backed securities. The intransparency of structured products and the inaccuracy of credit ratings contributed to the employees' ability to conceal the underlying risk from the banks' shareholders. The analysis points to an urgent need to reform compensation practices in the financial sector.
Current Teaching (2019/20)
All teaching materials can be found on Pamplemousse.
Econometric Evaluation of Public Policies (ENSAE, Paris-Saclay)
Joint with Bruno Crépon
Development Microeconomics (ENSAE, Paris-Saclay)
Experimental and Behavioural Economics (ENSAE, Paris-Saclay)
Joint with Guillaume Hollard
Term time: By appointment (ENSAE, Office 4043).