When Nudge Comes to Shove: Demand for Commitment in Microfinance Contracts
AbstractWe conduct a field experiment to test the demand for flexibility and for soft and hard commitment among clients of a microfinance institution. We offer a commitment contract inspired by the rotating structure of a ROSCA. Additional treatments test ex ante demand for soft commitment (e.g., reminders), hard commitment (e.g., penalty for missing an instalment), and flexibility (e.g., option to postpone an instalment). Our design is unique in the literature for allowing us to test — using the same respondent population — how demand for behavioral features differs between loan and savings contracts. We find substantial demand for both credit and saving contracts but no demand for any of the additional contract features, in isolation or in combination, in spite of their effectiveness in improving repayment. In particular, demand for savings is insensitive to behavioral features. Individuals offered loans actively dislike commitment and flexibility, unless the latter is combined with reminders. These findings complement a literature showing that commitment devices induce financial discipline, but suggest
that many commitment devices used in practice may be seen as overly restrictive ex ante, even for a population with a demonstrated demand for commitment products.