Why Do Labels Work? A Theoretical Analysis and Proposed Test Design of Mechanisms Underlying Labeled Cash Transfers

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Barcelona GSE Master Project by Angela Bouzanis, Victoria Gonsior, Rozália Kepes, and Eva Werli

Master Program: Economics

About Barcelona GSE master programs: http://j.mp/MastersBarcelonaGSE

Published in: Economy & Finance
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Why Do Labels Work? A Theoretical Analysis and Proposed Test Design of Mechanisms Underlying Labeled Cash Transfers

  1. 1. Why Do Labels Work? ATheoreticalAnalysisand ProposedTestDesignof MechanismsUnderlyingLabeled CashTransfers Master Project Angela Bouzanis,Victoria Gonsior, Rozália Kepes, EvaWerli Economics Program 2013/14 6/27/2014 Angela Bouzanis, Rozalia Kepes, Eva Werli and Victoria Gonsior 1
  2. 2. Angela Bouzanis, Rozalia Kepes, Eva Werli and Victoria Gonsior 2 Motivation Motivation From CCTs to UCTs and LCTs: Libertarian paternalism Benhassine, Devoto, Duflo, Dupas & Pouliquen (2014) RCT in Morocco: Evidence that LCTs are succesful Deaton (2010) critique: Lack of theoretical foundation of RCTs Research Propose mechanisms to explain why LCTs work. Mechanisms Mental accounting Lying aversion Social norms Informational updates 6/27/2014
  3. 3. Angela Bouzanis, Rozalia Kepes, Eva Werli and Victoria Gonsior 3 Objective: Which mechanism has a significant effect on the successes of LCTs regarding school enrollment and attendance rates in a developing country? Approach: RandomizedControlledTrial Control: Standard UCT without a label attached 4Treatments Households with school-age children receive a flyer detailing the upcoming cash transfer: 1. Information about the transfers’ unconditionality 2. Exact wording depends on the treatment RCT – General Design Benhassine, N., Devoto, F., Duflo, E., Dupas, P., & Pouliquen, V. (2014). Turning a Shove into a Nudge? A ‘Labeled Cash Transfer’ for Education. 6/27/2014
  4. 4. Angela Bouzanis, Rozalia Kepes, Eva Werli and Victoria Gonsior 4 Mental Accounting – Treatment 1 Label Theory • Explicitly states the cash transfer is intended for: ‘Children’s Education’ Income Food Housing Children’s Education 6/27/2014
  5. 5. Angela Bouzanis, Rozalia Kepes, Eva Werli and Victoria Gonsior 5 Lying Aversion –Treatment 2 Label Theory • Humanizes the government (puts a person in charge of the program) • Explicitly states what the other party can lose (the official is paid according to the attendance rate) • Emphasizes that the government trusts recipients to spend the money as directed 6/27/2014
  6. 6. Angela Bouzanis, Rozalia Kepes, Eva Werli and Victoria Gonsior 6 Social Norms –Treatment 3 Label Theory • Peer pressure to conform to the norm • Signal that most people in the community believe education is a worthwhile investment • Injunctive norms: one’s perception of what others believe to be appropriate conduct • Descriptive norms: one’s perception of what most others actually do • Reasons for conforming to norms: • Game-Theory • Information carried by others’ opinion • Real or imaginary peer pressure 6/27/2014
  7. 7. Angela Bouzanis, Rozalia Kepes, Eva Werli and Victoria Gonsior 7 Informational Updates – Treatment 4 Label Theory • Combines updating of beliefs regarding the returns to education and reducing the direct costs associated with additional education • Human CapitalTheory • Rate of return to education 6/27/2014
  8. 8. Identification and Estimation Strategy Obtained data: 1) Dummy for treatment groups 2) Baseline measure of outcome variables (school enrollment & attendance rate) 3) Post-treatment measure of outcome variables 4) Take-up of cash transfer in each village 5) Characteristics of households and students (as controls) Estimation strategy: 1) Use baseline data to check if randomization was correct 2) Regress the outcome variables on the treatment dummies and controls Issues: 1) Partial Compliance take-up rates ? ITT effects 2) Heterogeneous effect (income, gender, age) ATT 3) Exclusion restriction? Angela Bouzanis, Rozalia Kepes, Eva Werli and Victoria Gonsior 86/27/2014
  9. 9. Specific Issues and General Concerns Specific issues: Distribution of information in written form via mail. Illiteracy? too high opportunity costs to collect transfer? Unitary household? Cultural differences and beliefs? General Concerns: Is education problem driven by the demand side? Is a financial nudge effective? What is its optimal amount? Does attendance and enrolment necessarily mean better education? Should we measure test scores? Extension Angela Bouzanis, Rozalia Kepes, Eva Werli and Victoria Gonsior 96/27/2014
  10. 10. Thank you for your attention. Angela Bouzanis, Rozalia Kepes, Eva Werli and Victoria Gonsior 106/27/2014
  11. 11. Angela Bouzanis, Rozalia Kepes, Eva Werli and Victoria Gonsior 11 Label: Control Group Starting next month all parents of school age children in your area are eligible to receive a small monthly cash transfer from the government as part of a new social program.You can pick up the transfer from your nearest post office upon presenting a national ID card. 6/27/2014
  12. 12. Angela Bouzanis, Rozalia Kepes, Eva Werli and Victoria Gonsior 12 Label: Mental Accounting Starting next month all parents of school age children in your area are eligible to receive a small monthly cash transfer from the Ministry of Education as part of a new social program to increase school enrollment.This money is being given to you to invest in the education of your children.You can pick up the transfer from your nearest post office upon presenting a national ID card. 6/27/2014
  13. 13. Angela Bouzanis, Rozalia Kepes, Eva Werli and Victoria Gonsior 13 Label: Lying Aversion Starting next month all parents of school age children in your area are eligible to receive a small monthly cash transfer from the Ministry of Education as part of a new social program.This money is being given to you to assist in sending your child to school.You can pick up the transfer from your nearest post office upon presenting a national ID card. Your child’s attendance and enrollment will not be monitored, however we trust you to use this money for their education. Mr. X from the Ministry of Education is responsible for the success of this program and will be paid according to how effective it is at improving enrollment and attendance rates. 6/27/2014
  14. 14. Angela Bouzanis, Rozalia Kepes, Eva Werli and Victoria Gonsior 14 Label: Social Norms Starting next month all parents of school age children in your area are eligible to receive a small monthly cash transfer from the Ministry of Education as part of a new social program.This money is being given to you to assist in sending your child to school. In past programs, the majority of people expressed the belief that money should be spent on what it was given for, and they indeed spent it on education for their children.You can pick up the transfer from your nearest post office upon presenting a national ID card. 6/27/2014
  15. 15. Angela Bouzanis, Rozalia Kepes, Eva Werli and Victoria Gonsior 15 Label: Informational Updates Starting next month all parents of school age children in your area are eligible to receive a small monthly cash transfer from the Ministry of Education as part of a new social program.This money is being given to you to assist in sending your child to school.You can pick up the transfer from your nearest post office upon presenting a national ID card. A child’s education is one of the most important factors in that child’s success.Children who complete primary school earn higher wages and are less likely to live in poverty in the future then ones that do not complete it. It is estimated that each additional year of education increases a child’s future wage by X%. 6/27/2014
  16. 16. Angela Bouzanis, Rozalia Kepes, Eva Werli and Victoria Gonsior 16 Mental Accounting max ( , … , , , … , ) . . = = • Different goods xi will be grouped into m different mental expenditure categories θj , j ϵ (1, m) • Income w is no longer fungible but will be split up and assigned to the different expenditure categories: • two expenditure categories θ1 and θ2 • new maximization problem: = ! " 6/27/2014

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