Experiments on Liquidity, Loans, and Time Preferences
Friday, Jan. 5, 2018 10:15 AM - 12:15 PM
- Chair: Katherine Baldiga Coffman, Harvard Business School
Time-inconsistent Charitable Giving
AbstractThis 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
AbstractDo 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
AbstractThis 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.
- D0 - General