Jonathan Bauchet

Substitution Bias and External Validity: Why an Innovative Anti-Poverty Program Showed No Net Impact

The net impact of development interventions can depend on the availability of close substitutes to the intervention. We analyze a randomized trial of an innovative anti-poverty program in South India which provides “ultra-poor” households with inputs to create a new, sustainable livelihood. We find no statistically significant evidence of lasting net impact on consumption, income or asset accumulation. Instead, income from the new livelihood substituted for earnings from wage labor. A very similar intervention made a large difference elsewhere in South Asia, however, where wage labor alternatives were less compelling. The analysis highlights the roles of substitution bias and dropout bias in shaping evaluation results and delimiting external validity.

Conditional cash transfers for primary education: Which children are left out?

Highlights • We investigate predictors of child participation in Bolivia’s CCT program.• Children less exposed to Westerners have lower probabilities of receiving transfers.• Participation rates are highest around age 11 y.• Parents’ modern human capital is not associated with participation.• Participation rates are similar for boys and girls.

ROSCA Composition and Repayment: Evidence from Taiwanese Bidding ROSCAs

ABSTRACT Rotating savings and credit associations (ROSCAs) are widespread and remain a key financial management tool for poor individuals. We analyse data from Taiwanese bidding ROSCAs and focus on how social relationships within the group influence contribution behaviour and ROSCA failure. We find that less socially-connected participants were more likely to receive the pot early in the cycle, which increases their incentive to default, yet contrary to accepted wisdom groups including more outsiders were not more likely to experience repayment problems. Our results highlights how bidding ROSCAs can be a versatile device that provide profitable savings while allowing for emergency credit.

Microfinance bundling and consumer protection: experimental evidence from Colombia

ABSTRACT Bundling micro-insurance with loans should help not only decrease costs and therefore increase take-up but may also decrease financial inclusion if the insurance and/or loan are refused. We implement a randomised control trial in which a voluntary crop micro-insurance product is offered jointly with a loan application or separately (at a later date). The delayed offer of insurance did not influence overall insurance take-up or coverage amount but had heterogeneous impacts by crop, supporting the idea that bundling microfinance products is an opportunity more than a constraint. Yet, low product understanding also highlights the need for well-designed and effective consumer protection policies.

Asymmetric Information in Microinsurance Markets: Experimental Evidence from Mexico

Microinsurers strive to simplify products and their pricing, a trend that runs counter to the customization and complex underwriting of insurance in richer markets. While necessary to reduce costs and reach wide scale, this trend opens microinsurance markets to problems of information asymmetries. We use a large dataset from a Mexican bank that offers a life insurance policy to its borrowers at a unique rate. We exploit an exogenous determinant of insurance purchase to test for systematic use of asymmetric information. We find evidence of strategic behavior on the part of borrowers stemming primarily from insurers not using available client information. This is contrary to the conventional asymmetric information problem which rest on self-selection based on unobservable characteristics. In addition to providing evidence about asymmetric information in a new insurance market, this research has policy implications for the design of microinsurance products and for increasing financial access in developing countries.

Modalities Matter: Microinsurance Take-Up Under Different Payment Schemes

Poor people lead busy lives, and the variety of challenges they face daily leaves little space for attention-burdening requirements in how they manage their affairs. This paper shows that, beyond price, modalities of payment of a life microinsurance product can have a large impact on take-up. Mexican microcredit borrowers were 47 percent less likely to purchase a life microinsurance policy along with their loan when they were required to pay the premium up front rather than in installments bundled with their loan repayment. The up front payment modality is 12 percent less expensive but requires remembering to bring the payment at the group’s next weekly meeting. The drop in take-up is not due to liquidity constraints or unusual discount rates; I argue that it stems from the cognitive burden associated with up front payment, which must be larger for clients than the financial savings from using this payment method over paying in installments. The finding that small modalities can have a large impact on take-up has implications for the design of financial products and other voluntary development interventions designed for mass use, particularly when participation rates are lower than expected or desired.

Price and Information Type in Microinsurance Demand: Experimental Evidence from Mexico

Poor households in developing countries face large and varied risks, but often have inadequate informal tools to manage them. Microinsurance is being developed to create a better alternative, and it should in theory be in high demand. Yet take-up of microinsurance remains low. I study the impact of price and information type on the demand for life microinsurance among borrowers of a large microfinance institution in Mexico. Borrowers were assigned in two separate randomizations to a high or low price of insurance coverage, and to information emphasizing the financial or emotional toll of premature death on the remaining family. Increasing the price of coverage by eliminating the subsidy decreased coverage. While the type of information did not impact coverage on average, the nature of the marketing message mattered. The emotional information led to a lower drop in coverage than the financial message among young borrowers, and a larger drop among middle-aged borrowers. The findings add to the literature on how information drives behavior in developing countries, and suggest that information can be a key policy instrument of development policy and household risk management.