Equity and Incentives in Household Finance: Evidence from a Field Experiment in Rwanda

Last registered on December 06, 2023
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Pre-Trial

Trial Information

General Information

Title
Equity and Incentives in Household Finance: Evidence from a Field Experiment in Rwanda
RCT ID
AEARCTR-0011794
Initial registration date
November 26, 2023

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
December 06, 2023, 7:57 AM EST

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

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Primary Investigator

Name
Daniel Herbst
Affiliation
University of Arizona
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Other Primary Investigator(s)

PI Name
Constantine Yannelis
PI Affiliation
University of Chicago
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PI Name
Miguel Palacios
PI Affiliation
University of Calgary
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Additional Trial Information

Status
In development
Start date
2023-11-27
End date
2026-12-31
Keywords
Finance & Microfinance, Labor
Additional Keywords
Household Finance, Income Share Agreement, Equity, Adverse Selection, Moral Hazard, Income Insurance, Student Loans, Student Debt
JEL code(s)
I220, G52
Secondary IDs
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
We conduct a field experiment in Rwanda that randomly offers individuals different monthly payment obligations (debt) in exchange for pledging varying shares of their future incomes (equity). Our experimental design identifies selection and treatment effects across both debt and equity dimensions of the experimental offers. Specifically, we randomly offer enrollees in income-share agreements (ISAs) the opportunity to lower their pledged income shares by 4 or 8 percentage points in exchange for flat monthly fees ranging from 1000 to 20,000 Rwandan francs. To identify moral hazard, we estimate the treatment effect of accepting a contract with a lower income-share obligation, using contract offers as instruments. To identify adverse selection, we compare individuals who received different menus of offers but ultimately pledged the same income share. Estimating treatment effects and selection patterns in earnings, repayment, and risk factors enables us to quantify the welfare losses associated with information asymmetries in equity-like contracts and identify market failures in household financing.
External Link(s)

Registration Citation

Citation
Herbst, Daniel, Miguel Palacios and Constantine Yannelis. 2023. "Equity and Incentives in Household Finance: Evidence from a Field Experiment in Rwanda." AEA RCT Registry. December 06. https://doi.org/10.1257/rct.11794-1.0
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Experimental Details

Interventions

Intervention(s)
We randomly offer existing ISA enrollees the opportunity to lower their pledged income shares by 4 or 8 percentage points in exchange for flat monthly fees ranging from 1000 to 20,000 RwF. To identify moral hazard, we estimate the treatment effect of accepting a contract with a lower income-share obligation, using contract offers as instruments. To identify adverse selection, we compare individuals who received different menus of offers but ultimately pledged the same income share.
Intervention Start Date
2023-11-27
Intervention End Date
2025-12-31

Primary Outcomes

Primary Outcomes (end points)
Repayment amount and frequency; income and employment;
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
Our experiment involves randomly extending revised contract offerings to graduates enrolled in Chancen ISAs. These contract offerings will take the form of “discounts” to income-share obligations in exchange for an additional up-front payment.

Consider an ISA enrollee three years after graduation who is obligated to pay 9 percent of her annual income to Chancen over the next two years. In the first wave of the experiment, one experimental treatment would offer that student a revised contract reducing her income-share obligation to 1 percent in exchange for an additional 2,000 RwF per month. Another treatment offers the same eight-percentage-point reduction for 1,000 RwF, and another treatment group offers a four-percentage-point reduction for 4,000 RwF.
Experimental Design Details
Not available
Randomization Method
randomization done in office by a computer
Randomization Unit
individual
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
136 individuals
Sample size: planned number of observations
136 individuals
Sample size (or number of clusters) by treatment arms
Treatment 1: ISA reduction=4%, Flat Monthly Payment=1000 RwF, N = 27
Treatment 2: ISA reduction=4%, Flat Monthly Payment=4000 RwF, N = 13
Treatment 3: ISA reduction=4%, Flat Monthly Payment=10000 RwF, N = 28

Treatment 4: ISA reduction=8%, Flat Monthly Payment=2000 RwF, N = 27
Treatment 5: ISA reduction=8%, Flat Monthly Payment=8000 RwF, N = 15
Treatment 6: ISA reduction=8%, Flat Monthly Payment=20000 RwF, N = 26
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
Supporting Documents and Materials
IRB

Institutional Review Boards (IRBs)

IRB Name
University of Chicago Institutional Review Board
IRB Approval Date
2019-03-20
IRB Approval Number
IRB18-1796
Analysis Plan