Abstract

https://ssrn.com/abstract=2872492
 


 



Income Timing, Savings Constraints, and Temptation Spending: Evidence from a Randomized Field Experiment


Lasse Brune


Yale University - Economic Growth Center

Jason Theodore Kerwin


University of Minnesota - Twin Cities - Department of Applied Economics

November 29, 2016


Abstract:     
We study a savings technology that is popular but underutilized in developing countries: short-term deferred compensation, in which workers receive a single, later lump sum instead of more frequent installments. Workers who are randomly assigned to lump-sum payments reduce the share of income they spend immediately by 25%, and increase short-term cash holdings by a third. They are 5 percentage points more likely to purchase an artificial "bond" offered through the study. These effects are most likely due to savings constraints: 72% of workers prefer deferred payments, and rationalizing workers' choices without savings constraints requires implausibly low discount factors. Although workers report that temptation spending is an important driver of savings constraints, we find little evidence for that mechanism. Employers could enhance workers' welfare at limited cost by offering deferred wage payments.

Number of Pages in PDF File: 43

Keywords: Savings Constraints, Financial Inclusion, Time Preference, Discounting, Labor Economics, Development Economics

JEL Classification: D14, J33, O12, O16


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Date posted: November 21, 2016 ; Last revised: November 30, 2016

Suggested Citation

Brune, Lasse and Kerwin, Jason Theodore, Income Timing, Savings Constraints, and Temptation Spending: Evidence from a Randomized Field Experiment (November 29, 2016). Available at SSRN: https://ssrn.com/abstract=2872492 or http://dx.doi.org/10.2139/ssrn.2872492

Contact Information

Lasse Brune
Yale University - Economic Growth Center ( email )
Box 208269
New Haven, CT 06520-8269
United States
Jason Theodore Kerwin (Contact Author)
University of Minnesota - Twin Cities - Department of Applied Economics ( email )
MN
United States
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