Carolina Castilla

Limited Attention to Search Costs in the Gasoline Retail Market: Evidence from a Choice Experiment on Consumer Willingness to Search

We conduct a choice experiment to investigate whether U.S. gasoline consumers exhibit limited attention to the costs of searching for lower prices. When consumers search for prices as they drive, the search cost is a function of the amount of gasoline consumed while driving and the time spent searching for prices. We randomize the amount of information we provide the respondents to a survey about search costs in one of 3 ways: time, gasoline, or both. Results indicate that cognitive costs cause inattention to time costs. We also find that respondents overestimate the cost of the gasoline used while driving, thus forgoing consumer surplus. Copyright 2013, Oxford University Press.

Subjective well-being and reference-dependence: Insights from Mexico

Data from Mexico are used to examine whether two indicators of subjective well-being — income satisfaction and income adequacy — correlate not only with the respondent’s absolute level of income, but also with their assessment of how their income compares relative to the income of a reference group, the level of income they hoped to have achieved by that stage of their life, and the income they had three years earlier. Both subjective well-being indicators correlate positively with the ranking relative to all three reference points. Some of the findings differ across segments of the income distribution. Subjective well-being assessments of the poor are influenced more by the inability to achieve income aspirations, while differences with respect to others is a more prominent factor among non-poor respondents. *Previously circulated: UNU-WIDER Working Paper 2010/76

Ties that Bind: The Kin System as a Mechanism of Income-Hiding between Spouses in Rural Ghana

I present a simple model of intra-household allocation between spouses to show that when the quantity of resources available to the household is not perfectly observed by both spouses, hiding of income can occur even when revelation of the additional resources increases bargaining power. From the model, a test to identify income hiding empirically is derived. For the empirical application, a household survey conducted in Southern Ghana is used. I exploit the variation in the degree of asymmetric information between spouses, measured as the difference between the husband’s own reporting of farm sales and the wife’s reporting of his farm sales, to test whether the allocation of resources is consistent with hiding. For identification, the wife’s clan and the husband’s bride-wealth payments upon marriage are used as instruments for asymmetric information. My findings indicate that allocations are suggestive of men hiding farm sales income in the form of gifts to extended family members, which are not closely monitored. It is unclear whether hiding has negative consequences in the long run because hiding occurs in the form of gifts, instead of expenditure in alcohol or tobacco. If the gifts represent a form of risk-sharing, then these gifts will return to the household in the future, and hiding is not necessarily inefficient. However, if these gifts are motivated by social pressure then hiding can result on poverty traps caused by kin system. The wife’s response is also suggestive of hiding. As information asymmetries increase, she reduces her expenditure in non-essential items, such as prepared foods and oil, but increases personal spending. Expenditure in oil is one of the main sources of calories among poor households in the region.

Asymmetric Search and Loss Aversion: Choice Experiment on Consumer Willingness to Search in the Gasoline Retail Market

Price search enables consumers to overcome information asymmetries, it can lead to a reduction in price dispersion and it can increase consumer surplus, but search is costly. In this paper, an internet survey is conducted among a random sample of 490 drivers in the State of Ohio to answer the question, when are consumers more likely to search? The internet survey affords us the opportunity to impose exogenous price changes in a random sample of gasoline consumers to examine the decision-making process behind intended search decisions. Results indicate that among the respondents who faced prices below their expected price, only 12% chose to search, whereas 45% searched when prices were above. Results suggest that asymmetric search can be explained by prospect theory, in the sense that consumers evaluate current prices compared to a reference price, and as a consequence they value price increases differently from price decreases. Our findings indicate that in the gasoline retail market, consumers are allowing retailers to extract consumer surplus by exhibiting loss aversion because this behavior deters search when the probability of finding a lower price is highest.

Political role models and child marriage in India

Drawing data from the most recent wave of the India Human Development Survey and the year of the first election with reserved seats for women, I estimate the effect of the Panchayati Raj institutions on child marriage. In India, marriage traditions dictate that two ceremonies take place: the wedding and the gauna ceremony. These differ in timing and purpose. After the wedding, the bride and groom do not necessarily live together. The gauna ceremony indicates the start of marital life and the consummation of the marriage. Results indicate that women in local government decrease the likelihood of child marriage, and delay the age at first marriage and the gauna ceremony. Delaying marriage has important policy implications for both the bride and her future children as it improves education, autonomy over fertility, and health. The results indicate that after 18 years of implementation, exposure to women in government can reduce the prevalence of child marriage.

Do safety net transfers improve household diets and reduce undernutrition? Evidence from rural Ethiopia

Abstract In this paper we examine the impact of the Ethiopia’s Productive Safety Net Program (PSNP) on household dietary diversity and child nutrition using both waves of the Ethiopian Socioeconomic Survey. For identification, we use various methodologies. Results indicate consistently that PSNP has not had the desired effect on household dietary diversity or child nutrition regardless of model specification or methodology, suggesting that perhaps the transfers need to be paired with additional interventions such as information about nutrition.

Asymmetric search and prospect theory: choice experiment on consumer willingness to search in the gasoline retail market

We use an internet survey conducted among a representative random sample of drivers in the State of Ohio consisting of a choice experiment designed to examine the mechanism driving asymmetric search. The internet survey affords us the opportunity to overcome endogeneity difficulties by imposing exogenous price changes on gasoline consumers to examine the decision-making process behind intended search decisions. We randomly assigned participants to one of five price treatments (either 2.5 or 5% above or below their reported expected price, or no change). We provide a simple empirical model to derive testable implications under prospect theory and use the internet survey to test them. Results indicate that among the respondents who faced prices below their expected price, only 12% chose to search, whereas 45% searched when prices were above. Further, we find results consistent with asymmetric search being driven by prospect theory. The change in consumers’ willingness to search is twice as large when prices exceed expectations by 2.5% relative to when prices exceed them by 5% suggesting that consumers derive utility of finding a good deal evaluated relative to a reference price. We show that this result is inconsistent with standard utility theory or consumers using alternative reference prices.

Field Experiments in a Course on Behavioral Economics: Nudging Students Around Campus

In experiential education, the student learns through experience by observing a concept or phenomenon and applying this knowledge in a real-world context. A research project conducted by undergraduate students at a U.S. private liberal arts college is described in this article. The project provided opportunity for students to think about their decision-making processes, compare them to existing literature, and apply this knowledge in examining their own hypotheses through primary data collection on campus. While the research designs simplicity ensured that the project could be completed in time for a final grade and sacrificed lecture material in favor of feedback opportunities, this behavioral field experiment was a rewarding experience because of students’ enthusiasm and their ability to defend and think critically of their own ideas.

Heteroskedasticity in Fixed-Effects One-Way Error Component Models: Evaluating the Performance of Standard Tests

This paper evaluates the performance of the Breusch-Pagan LM test and the White test for heteroskedasticity in fixed-effects one-way error components models. It contrasts the behavior of these tests under the fixed-effects model with the first differences model for different variance functional forms, degrees of heteroskedasticity and sample sizes. Monte Carlo results indicate both tests perform equally well in large samples. They are very sensitive to overall sample size, as changes in T or N do not affect the performance if overall sample size is held constant. The White test seems to be more reliable for identifying heteroskedasticity than the Breusch-Pagan test, even if we are able to identify the actual functional form of the variance. The performance of either test in small samples is poor.