Essays on the design and targeting of financial products : evidence from field experiments in India

• Main Author: Rigol, Natalia
• Other Authors: Benjamin Olken and Abhijit V. Banerjee.
• Format: Others
• Language: English
• Published: Massachusetts Institute of Technology 2016
• Subjects: Economics.
• Online Access: http://hdl.handle.net/1721.1/104490

Thesis: Ph. D., Massachusetts Institute of Technology, Department of Economics, 2016. === Cataloged from PDF version of thesis. === Includes bibliographical references (pages 93-96). === study the design of microfinance contracts and how to target financial products using community information. In Chapter 1, I report on a field experiment in India that assesses (1) whether community members have information about one another that can be used to identify high-ability entrepreneurs and (2) whether techniques from mechanism design can be used to elicit truthful reports. To answer the first question, I ask respondents to rank their entrepreneur peers on various metrics of business profitability and growth, borrower reliability, and household financial activity. I find that the information provided by community members is predictive of many key business and household characteristics. I also find that, when respondents are aware that the information they provide about their peers will be used to allocate a valuable prize - a $100 business grant - they misreport to favor their family or close friends. To answer the second question, I test the effectiveness of various truth-telling incentives: paying respondents for the accuracy of reports, varying whether reports are collected in private or in public, and using cross-reporting techniques motivated by mechanism design theory. I find that both monetary incentives and public reporting significantly improve the accuracy of the ranks. In Chapter 2, co-authored with Benjamin Roth, we report on results from a field experiment in India in which we test the viability of two kinds of monetary payment rules used to incentivize truth-telling: a novel payment rule that relies on ex-post verification of reports and a rule based on peer prediction methods, which relies only on contemporaneous peer reports. Farmers were asked to answer questions about their neighbors and were told that these reports would be used to determine cash prizes. We varied whether farmers received incentives for the accuracy of their reports (via one of the payment rules) or not. We find that, in the absence of monetary incentives, respondents lie in favor of their family and friends. However, monetary incentives improve the quality of reports and both payment rules result in reports of comparable accuracy. This is a reassuring outcome since peer prediction is much easier to implement (though mechanically complex). Importantly, by imposing structure on our data we also find evidence that a peer predictive payment rule, the Robust Bayesian Truth Serum Witkowski and Parkes (2012), is empirically incentive compatible; respondents maximize their subjective expected utility by reporting truthful answers. In Chapter 3, with Rohini Pande, Erica Field, and John Papp, we ask: do the repayment requirements of the classic microfinance contract inhibit investment in high-return but illiquid business opportunities among the poor? Using a field experiment, we compare the classic contract which requires that repayment begin immediately after loan disbursement to a contract that includes a two-month grace period. The provision of a grace period increased short-run business investment and long-run profits but also default rates. The results indicate that debt contracts that require early repayment discourage illiquid risky investment and thereby limit the potential impact of microfinance on microenterprise growth and household poverty. === by Natalia Rigol. === Ph. D.