THE HALF-LIFE OF HAPPINESS: HEDONIC ADAPTATION IN THE SUBJECTIVE WELL-BEING OF POOR SLUM DWELLERS TO THE SATISFACTION OF BASIC HOUSING NEEDS

The program

The TECHO program provides basic, pre-fabricated, transitional houses to extremely poor families living in informal settlements (slums) in Latin America regardless of whether or not they own the land on which they live. The aim of this program is to increase the well-being of these families. The program was started 19 years ago in Chile and now works in 19 Latin American countries. This NGO has built almost 100,000 houses with the help of an army of volunteers. Every year, more than 30,000 youths throughout Latin America volunteer to work with TECHO. We evaluate the program in three Latin American countries: El Salvador, Uruguay, and Mexico.

TECHO targets the poorest informal settlements and, within these settlements, households that are lodged in very substandard dwellings. TECHO serves "irregular settlements," which are de fined as communities in which a majority of the families are living on plots of land that they do not own. These settlements are plagued by a host of problems, including insufficient access to basic utilities (water, electricity and sanitation), signifi cant levels of soil and water contamination, and overcrowding. The typical housing units in these informal settlements are no better than the surrounding dwellings, as they are rudimentary units constructed from discarded materials such as cardboard, tin and plastic, have dirt floors and lack connections to basic utilities such as water supply and sewerage systems.

The TECHO housing units are 18 square meters (6m by 3m) in size. The walls are made of pre-fabricated, insulated pinewood or aluminum panels, and the roofs are made of tin to keep occupants warm and protect them from humidity, insects, and rain. Floors are built on top of 15 stacks that raise them up to between 30 and 80 centimeters of the ground in order to reduce dampness and protect occupants from floods and infestations. Although these houses are a major improvement over the recipients' previous dwellings, the amenities that they offer are limited, as they do not include a bathroom or kitchen or plumbing, drinking water hook-ups or gas connections. The houses are designed to be low in cost and easy to construct; they can be placed on a plot of land next to an existing house or as a new unit
that replaces the existing one. Units are modular and portable, can be built with simple tools, and are set up by volunteers working in squads of from 4 to 8 members. The cost of a TECHO house is less than US$1,000 -- with the bulk of the cost being accounted for by the acquisition, storage and transportation of the building materials, since there are essentially no labor costs. The bene ficiary family contributes 10% of that amount (around US$100). In El Salvador, US$100 is approximately equivalent to 3.3 months' per capita baseline earnings, while in Mexico and Uruguay, it is roughly equivalent to 1.6 and 1.4 months, respectively. Importantly, added to the fact that the TECHO house is heavily subsidized, there are no exact substitutes of TECHO houses on the market that households could be investing in incrementally. TECHO do not offer the house in the market and only offer it to a group of selected slum dwellers that are in the poorest conditions within slums. Hence, even if households did not face credit constrains to get access to housing improvements, they could not get access to TECHO houses neither in the form nor at the price offered by TECHO. This consideration is relevant for interpreting the results of our study. Finally, the houses are also easy to disassemble and move to a new location. It is important for the houses to be movable because most of the families in these makeshift settlements do not have formal title to the land that they live on. TECHO managers were concerned that upgrading the value of the land by building permanent housing might induce both public and private owners to try to force residents to move in order to reclaim the improved land. However, making the housing mobile does away with that incentive.

2007-09-01

2012-04-30

Satisfaction with quality of life
Standardized satisfaction with quality of life
Satisfaction with quality of housing conditions
Standardized Satisfaction with quality of housing conditions

Satisfaction with quality of life: a dummy indicator equal to one if the individual report to feel satisfied or very satisfied with his life; and zero if not.

Standardized satisfaction with quality of life: the satisfaction variable is measured with a Likert scale that offer 4 categories of satisfaction: "very satisfied"; "satisfied"; "neither satisfied nor unsatisfied"; "unsatisfied". Using a linear scale, we build a standardized satisfaction indicator by substracting the mean satisfaction at the settlement level to the satisfaction value reported by the individual, and dividing it by the standard deviation of the satisfaction indicator at the settlement level.

Satisfaction with quality of floors: a dummy indicator equal to one if the individual report to feel satisfied or very satisfied with the quality of floors; and zero if not.

Satisfaction with quality of walls: a dummy indicator equal to one if the individual report to feel satisfied or very satisfied with the quality of walls; and zero if not.

Satisfaction with quality of roofs: a dummy indicator equal to one if the individual report to feel satisfied or very satisfied with the quality of roofs; and zero if not.

Satisfaction with protection against rain: a dummy indicator equal to one if the individual report to feel satisfied or very satisfied with the protection against water when it rains; and zero if not.

Standardized satisfaction with housing quality: the satisfaction variables are measured with a Likert scale that offer 4 categories of satisfaction: "very satisfied"; "satisfied"; "neither satisfied nor unsatisfied"; "unsatisfied". We use the
full four-point indicator as a continuous measure and standardize it for each settlement using the mean and standard deviations for the control group of that settlement. We do this for each housing quality satisfaction measure. The standardization procedure is based on the assumption
that respondents have common views of how the thresholds map into utility within settlements but allows them to vary by settlement. Furthermore, we construct a summary index of subjective well-being. The summary index is computed as the sum of standardized satisfaction variables (with the sign of
each measure oriented so that more beneficial outcomes have higher scores), divided by the number of satisfaction variables (4 in this case). This summary index aggregates information across related outcomes and is useful both as a summary statistic and possibly as a means of augmenting the statistical power to detect effects of the intervention that are consistent across groups of outcomes.

Experimental design

Between 2007 and 2010, TECHO implemented the program in a number of selected slums in each country. TECHO budget constraints limit the number of housing units that can be built at any one time. Under these constraints, TECHO opted to select beneficiaries by means of a lottery system that gives all eligible households within a settlement an equal opportunity to receive one of the units. TECHO first selected a set of eligible settlements and asked their volunteers to conduct a census to identify eligible households within each settlement, those with extremely poor housing conditions. The eligible households were then surveyed (baseline survey) and randomly assigned to treatment and control groups within each settlement. In general, the number of treatments represents a small portion of all the households in the settlement. For example, in around 40% of the settlements, less than 10% of the households were treated, and the proportion of treated households exceeded 50% of the slum population in only 8% of the settlements.

In order to obtain accurate information from the households and to avoid creating any desirability bias in the treatment group, the data collection work was separated from the implementation of the intervention by contracting a highly respected survey firm in each country. The enumerators told the interviewees that they were collecting data for a study on living conditions
and did not make any reference to TECHO verbally or in writing. After randomization, treatment households were told about the program and its requirements by TECHO offcials. Some of them agreed to participate in the program and some did not. Control households were explicitly not told that
they would receive the benefits provided by the program in the future, so their behavior should not have been affected by the expectation of being treated in the next round, although they may have felt frustrated when they realized that
they had lost the lottery.

Since TECHO did not have the capacity to work in all settlements at the same time, the program was rolled out in each country in two phases at the settlement level. Baseline surveys were conducted approximately one month before the start of the construction work in each settlement, which gave
households time to acquire the funds to make the 10% contribution required by the program, while the follow-up surveys were conducted simultaneously for
all settlements for both phases in each country.

While the settlements were not randomly allocated to phases, there is plausibly exogenous variation in the amount of time that beneficiaries had occupied the house at the time of the follow-up survey, since no discretionary criteria were used to select which slum went to which phase. Instead, the decision as to which slum would be treated first and which would be treated
later on depended on the inflow of census information about eligible households for each slum. When the information on the set of eligible households in each slum was delivered to the central office, TECHO organized its internal resources in such a way as to treat the assigned-to-treatment households in that slum as soon as possible. This suggests that the allocation of slums to phases depended more on the capacity of the volunteers assigned to each slum to conduct the census of eligible households than on the characteristics of the slum dwellers in that location. Phase I settlements had 24 months of exposure, on average, while Phase II settlements had an average of 16 months of exposure, for a difference of 8 months, on average.

Our sample includes a total of 74 settlements, of which 29 were in Phase I and 45 were in Phase II. The total number of eligible households in these settlements was 2373. Treatment was offered to 57% of the households, and over 85% of those households actually received a new house. The remaining 15%
that were assigned to treatment could not afford the required 10% co-payment balanced across phases. Attrition rates between baseline and follow-up amounted to 6% of the
households in the assigned-to-treatment group and 7% of those in the control group, with most of the attriters being households whose members moved out of the slum and could not be reached in their new location. This difference is not statistically significant at conventional levels. The difference between
the attrition rates of the assigned-to-treatment and control groups within each phase was not statistically significant either. Finally, the attrition rates are also balanced across phases.

Randomization done in office by a computer.

TECHO first selected a set of eligible settlements within each country study and then conducted a census to identify eligible households within each settlement (i.e., those poor enough to be given priority). The eligible households were surveyed (baseline survey) and then randomly assigned to treatment and control groups, within each settlement. Note that this is a household-level randomized experiment, where treatment and control units are co-residents within each selected slum. Each slum is considered as one strata. In other words, our design consist on first stratify the sample by slum, and then within each slum randomly assign households to treatment and control groups.

No

74 slums

2,373 households (32 households per slum, on average)

1,356 treatments; 1,017 controls

Our outcome of interest is satisfaction with quality of life. Considering a sample size of 2,373 units in 74 clusters (i.e, with an average of 32 observations per cluster); a control/treatment ratio of 0.75; a correlation coefficient of 0.312 between baseline and follow up outcome; alpha=0.05; std.dev = 1 (normal standardized outcome); and intracluster correlation = 0.05852 ; our experimental design is able to identify an effect size of 0.25 standard deviations with an statistical power of 0.8.

Subjective well-being may not improve in step with increases in material well-being due to hedonic adaptation, a psychological process that attenuates the long-term emotional impact of a favorable or unfavorable change in circumstances. As a result, people's degree of happiness eventually returns to a stable reference level. We use a multi-country field experiment to examine the impact on subjective measures of well-being of the provision of improved housing to extremely poor populations in order to test whether they exhibit hedonic adaptation when their basic housing needs are met. After sixteen months, we find that subjective perceptions of well-being improve substantially for recipients of improved housing but that, after, on average, eight additional months, 60% of that gain has dissipated. Extrapolation achieved through estimation of a structural model of hedonic adaptation suggests that the decay rate of the treatment effect is 20% per month. As a result, after 28 months of treatment exposure, we forecast that the entire treatment effect will have disappeared.

Galiani, Sebastian., Gertler J. Paul., and Raimundo Undurraga (2017) "The half-life of happiness: Hedonic adaptation in the subjective well-being of poor slum dwellers to the satisfaction of basic housing needs" Journal of the European Economic Association. Forthcoming

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