Aspiration Adaptation in Resource-Constrained Environments

62 Pages Posted: 29 Jan 2018

See all articles by Sebastian Galiani

Sebastian Galiani

University of Maryland - Department of Economics

Paul J. Gertler

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Raimundo Undurraga

New York University (NYU)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2018

Abstract

We use a multi-country field experiment that combines random variation at the treatment level with exogenous variation in the length of exposure to treatment to test the effect of a slum-housing intervention on the evolution of housing aspirations of untreated co-resident neighbors over time. Initially after treatment, we observe a huge control- treatment housing gap in favor of treated units. As a result, non-treated households' aspirations to upgrade their dwelling are significantly higher compared to the treatment group, suggesting that they aspire to “keep-up” with the treated Joneses', as in standard models of peer effects. However, eight months later, no effects are found on housing investments and the aspirational effect completely disappears. Estimates based on a structural model of aspiration adaptation show that the decay rate is 38% per month. Our evidence suggests that simply fostering higher aspirations may be insufficient to encourage forward-looking behavior among the poor.

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Suggested Citation

Galiani, Sebastian and Gertler, Paul J. and Undurraga, Raimundo, Aspiration Adaptation in Resource-Constrained Environments (January 2018). NBER Working Paper No. w24264. Available at SSRN: https://ssrn.com/abstract=3112076

Sebastian Galiani (Contact Author)

University of Maryland - Department of Economics ( email )

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Paul J. Gertler

University of California, Berkeley - Haas School of Business ( email )

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Raimundo Undurraga

New York University (NYU) ( email )

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