Income Timing, Temptation, and Expenditures: Field Experimental Evidence from Malawi

Last registered on October 18, 2023
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Pre-Trial

Trial Information

General Information

Title
Income Timing, Temptation, and Expenditures: Field Experimental Evidence from Malawi
RCT ID
AEARCTR-0000437
Initial registration date
July 15, 2014

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
July 15, 2014, 2:41 PM EDT

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

Last updated
October 18, 2023, 11:51 AM EDT

Last updated is the most recent time when changes to the trial's registration were published.

Locations

Country
Malawi
Region
Mulanje

Primary Investigator

Name
Jason Kerwin
Affiliation
University of Washington
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Other Primary Investigator(s)

PI Name
Lasse Brune
PI Affiliation
University of Michigan
Contact Investigator

Additional Trial Information

Status
Completed
Start date
2013-02-01
End date
2014-01-31
Keywords
Finance & Microfinance, Labor
Additional Keywords
JEL code(s)
Secondary IDs
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
Developing economies are characterized not only by low incomes but also by low savings and apparent failures to take advantage of profitable opportunities for investment (e.g. de Mel at al. 2008). One common explanation is that the poor face temptations to misspend their income which they are unable to overcome given limited financial markets, and that aggregating steady streams of small amounts of income into larger lump sums would help mitigate these problems. This assumption has helped drive the research on commitment savings accounts (Ashraf and Karlan 2006, Brune et al. 2013). However, converting smooth income streams into larger, deferred sums may also lead to increased temptation and potentially poor choices - the proverbial effect of "money burning a hole in one's pocket". Banerjee et al. (2010) find evidence of this behavior among some users of microfinance in Hyderabad, and increasing temptation is consistent with anecdotal reports of behavior around payday in Malawi as well as research from the developed world (e.g. Stephens 2003). It is not currently understood what factors lead certain lump sums to be beneficial to achieving savings goals, while others lead people to give in to temptation, but the specific timing of the lump sum may play a role. This project uses an RCT to explore how the timing of wage payments changes the relative benefits of lump sums vs. small installments.

We partner with a local NGO to expand a public works program by 350 workers who are employed for 16 days over the course of three months (Oct through Dec 2013), subdivided into two rounds. Workers are cross-randomized into two sets of experimental conditions, separately for each round of the study. The first study arm varies whether workers receive their pay in a single, lump-sum payment or in weekly installments. The second study arm varies how tempting the environment is in which workers receive their payments: All workers receive their pay at the same location, which is the site of the major local market, but some receive their pay on the weekly "market day", while others receive it the day before. To ensure that all workers face equal transaction costs, everyone will come to the market for brief surveys on both days, irrespective of whether they are being paid. The main outcomes of interest are survey measures of saving level, expenditure composition, loans, and transfers, as well as uptake of a high-interest, zero-risk "bond" offered to all the workers in the study that provides an objective measure of savings behavior.
External Link(s)

Registration Citation

Citation
Brune, Lasse and Jason Kerwin. 2023. "Income Timing, Temptation, and Expenditures: Field Experimental Evidence from Malawi." AEA RCT Registry. October 18. https://doi.org/10.1257/rct.437-3.0
Former Citation
Brune, Lasse and Jason Kerwin. 2023. "Income Timing, Temptation, and Expenditures: Field Experimental Evidence from Malawi." AEA RCT Registry. October 18. https://www.socialscienceregistry.org/trials/437/history/197079
Sponsors & Partners

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Experimental Details

Interventions

Intervention(s)
Intervention Start Date
2013-10-28
Intervention End Date
2014-01-24

Primary Outcomes

Primary Outcomes (end points)
Our key outcome variables are:
1. Savings, expenditure, loans and transfers as measured via household surveys
2. Spending behavior captured through high-frequency surveys conducted while respondents are picking up their wage payments
3. Uptake of a high-interest "bond" offered to all respondents, that must be bought in large installments, as an objective measure of savings behavior
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
The experiment was organized into two rounds that occurred over a period of three months from November 2013 to January 2014, with subjects randomized into treatment conditions separately by round. During each round, subjects worked for two weeks and then received their pay either a) in weekly installments beginning at the end of the second week of work; or b) in a single lump sum, about three weeks after the last day of work.

In addition to variation in payment frequency, workers received their pay either c) on Fridays or d) on Saturdays. The two variations on the timing of pay -- weekly vs. monthly and Friday vs. Saturday -- were cross-randomized, creating four study arms in each round. The payments were made at the site of a major local market that occurs on Saturdays, with the intention of inducing variation in people's temptation to overspend. During the week after the last payday in each round, all workers were visited for a detailed survey about their expenditure and income.

The variation in the day of the week of the payment was designed to shed light on the mechanisms behind the savings constraints people face. If money is received in a tempting environment, like the local market day, then arguably costs to resisting that temptation increase and workers would decide to spend and consume more right at the market when receiving their pay.

We picked Saturdays at the local trading center -- so that payroll for this group happened during the major market in the local area -- as a tempting context for the receipt of income. This choice was based on extensive qualitative and descriptive work with people in the local area. Anecdotally, people in Mulanje District often describe market days as tempting situations, in which excitement can cause them to purchase things they would rather not.
Experimental Design Details
Randomization Method
Randomization done in office by a computer. Randomization was stratified on workers' gender and village in round 1. The randomization for round 2 was then stratified on the round 1 assignment and village.
Randomization Unit
Individual workers.
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
700 worker-rounds
Sample size: planned number of observations
700 worker-rounds
Sample size (or number of clusters) by treatment arms
350 worker-rounds monthly lump-sum, 350 worker-rounds weekly installment
350 worker-rounds paid on Fridays, 350 worker-rounds paid on Mondays
Cross-randomization yields 4 cells of 175 worker-rounds apiece
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
Our MDES for each study arm, for each round, is 0.30 SDs of the outcome variable. For detecting differences between each cell of the 2x2 cross-randomization, our MDES is 0.43 SDs. Pooling the data across rounds will increase our power (and decrease our MDES); exact calculations will depend on the ICC of the outcome variable in question.
Supporting Documents and Materials
IRB

Institutional Review Boards (IRBs)

IRB Name
University of Michigan Health Sciences and Behavioral Sciences Institutional Review Board
IRB Approval Date
2013-08-02
IRB Approval Number
HUM00075932
IRB Name
Innovations for Poverty Action IRB
IRB Approval Date
2012-12-07
IRB Approval Number
12December-002
Analysis Plan

Post-Trial

Post Trial Information

Study Withdrawal

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Intervention

Is the intervention completed?
Yes
Intervention Completion Date
January 24, 2014, 12:00 +00:00
Data Collection Complete
Yes
Data Collection Completion Date
January 31, 2014, 12:00 +00:00
Final Sample Size: Number of Clusters (Unit of Randomization)
715 worker-rounds (365 workers, workers re-randomized to different treatments across rounds)
Was attrition correlated with treatment status?
No
Final Sample Size: Total Number of Observations
715 worker-rounds
Final Sample Size (or Number of Clusters) by Treatment Arms
Lump sum treatment: 359 workers treatment, 356 workers control Saturday payday treatment: 358 workers treatment, 357 workers control
Data Publication

Data Publication

Is public data available?
Yes
Public Data URL
http://doi.org/10.17632/kf3wy2k2bb.1

Program Files

Program Files
Yes
Program Files URL
http://doi.org/10.17632/kf3wy2k2bb.1
Reports, Papers & Other Materials

Relevant Paper(s)

Abstract
People in developing countries sometimes desire deferred income streams, which replace more-frequent income flows with a single, later lump sum. We study the effects of short-term wage deferral using a randomized experiment with participants in a temporary cash-for-work program. Workers who are assigned to lump-sum payments are five percentage points more likely to purchase a high-return investment. We discuss the role of both barriers to saving and credit constraints in explaining our results. While stated preferences for deferred payments suggest a role for savings constraints, the evidence is also consistent with a simpler model of credit constraints alone.
Citation
Brune, L., & Kerwin, J. T. (2019). Income Timing and Liquidity Constraints: Evidence from a Randomized Field Experiment. Journal of Development Economics, 138, 294–308. https://doi.org/10.1016/j.jdeveco.2019.01.001
URL
https://doi.org/10.1016/j.jdeveco.2019.01.001

Reports & Other Materials