« Back to Results

Experiments on Liquidity, Loans, and Time Preferences

Paper Session

Friday, Jan. 5, 2018 10:15 AM - 12:15 PM

Marriott Philadelphia Downtown, Grand Ballroom Salon L
Hosted By: American Economic Association
  • Chair: Katherine Baldiga Coffman, Harvard Business School

Giving Forward: A Potential Supplement to Student Loans

David Danz
,
University of Pittsburgh
David Huffman
,
University of Pittsburgh
Rachel Landsman
,
University of Pittsburgh
Lise Vesterlund
,
University of Pittsburgh
Stephanie W. Wang
,
University of Pittsburgh
Alistair Wilson
,
University of Pittsburgh

Abstract

We study the sustainability of a "pay-it-forward" partial tuition grant for college students with an overlapping generations contribution game in the laboratory. Students who choose a partial loan and partial grant option make a non-binding pledge to contribute to a grant which in turn funds tuition for future generations. When funds are received from and given to the general population we find that the available funds decrease over time due to free-riding and to the pledge fulfillment being delayed by loan repayments. When instead future gifts are received from and directed toward a particular group of future individuals the fund instead tends to evergreen.

Time-inconsistent Charitable Giving

James Andreoni
,
University of California-San Diego
Marta Serra-Garcia
,
University of California-San Diego

Abstract

This paper examines intertemporal charitable giving decisions. Applying a simple theoretical framework to two longitudinal experiments with actual charitable donations, we show that, when individuals derive utility from the decision to give, they will be more likely to give when the gift is delayed than when it is immediate. Such choice pattern is linked theoretically and empirically to a demand for flexibility, rather than the more typical demand for commitment. At the individual level, the increase in giving with delay coexists with the opposite pattern of decreasing giving with delay, arising from temptation to give, which is exhibited by a substantial minority. Our results reveal that intertemporal choice exhibits unique features in the charitable domain. 

Liquidity Constraints and Job Choice

Judd Benjamin Kessler
,
University of Pennsylvania
Lucas Coffman
,
Harvard University
John Conlon
,
Federal Reserve Bank of New York
Clayton Featherstone
,
University of Pennsylvania

Abstract

Do liquidity constraints affect what jobs people choose? We partner with Teach for America (TFA), a highly selective teacher-placement program, and test whether providing grants and short-term loans to recent college graduates and young professionals can affect whether they become teachers. In a field experiment involving over 5,000 TFA admits, we find that small increases in either grants or loans have a large effect on whether the admits with the highest financial need choose to enter and remain in the two-year program. High need admits offered an additional $600 in grants or loans were between 7 and 9 percentage points more likely to show up for their first day of teaching (on a base of 63%), and those offered $1,200 more in grants were 15 percentage points more likely to do so. Two aspects of our results suggest that the intervention works by easing liquidity constraints.  First, additional grants and short-term loans have an equally large effect on behavior. Second, the grants and loans only influence the 20% highest-need admits and the remainder are unaffected by the additional funds. Our results suggest that easing liquidity constraints by offering short-term loans could provide a low-cost method to increase the supply of potential workers into industries that require an up-front investment or a duration without earnings. Finally, policy makers are increasingly concerned with growing the supply of teachers in the US; we estimate that inducing one additional teacher (in expectation) to join the profession would cost about $300 in interest payments.

Procrastination in the Field: Evidence From Tax Returns

Seung-Keun Martinez
,
University of California-San Diego
Stephan Meier
,
Columbia University
Charles Sprenger
,
University of California-San Diego

Abstract

This paper attempts to identify present-biased procrastination in tax filing behavior. Our exercise uses dynamic discrete choice techniques to develop a counterfactual benchmark for filing behavior under the assumption of exponential discounting. Deviations between this counterfactual benchmark and actual behavior provide potential ‘missing-mass’ evidence of present bias. In a sample of around 22,000 low-income tax filers we demonstrate substantial deviations between exponentially-predicted and realized behavior, particularly as the tax deadline approaches. Present-biased preferences not only provide qualitatively better in-sample fit than exponential discounting, but also have improved out-of-sample predictive power for responsiveness of filing times to the 2008 Economic Stimulus Act recovery payments. Additional experimental data from around 1100 individuals demonstrates a link between experimentally measured present bias and deviations from exponential discounting in tax filing behavior.
Discussant(s)
Stephanie W. Wang
,
University of Pittsburgh
Jeffrey Naecker
,
Wesleyan University
Charles Sprenger
,
University of California-San Diego
Marta Serra-Garcia
,
University of California-San Diego
JEL Classifications
  • D0 - General