How Important Is Temptation Spending? Maybe Less than We Thought.

Temptation plays a key role in theoretical work on spending and saving in developing countries. The limited empirical evidence on its importance, however, suggests that cash transfers do not induce increases in temptation spending. This paper expands the evidence base by studying the effect of randomized exposure to temptation on spending decisions in rural Malawi. Consistent with the cash transfer literature, a more tempting environment does not induce significant changes in temptation spending. However, the magnitudes of both temptation spending levels and the treatment effects are somewhat sensitive to the definition of temptation spending used. This paper examines the potential factors that may be driving these null results, and suggests that future research may find a limited role for temptation in the economic decisions of the poor.

Income Timing and Liquidity Constraints: Evidence from a Randomized Field Experiment.

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.