Aspiration Adaptation in Resource-Constrained Environments

Sebastian Galiani, Paul J. Gertler, Raimundo Undurraga

NBER Working Paper No. 24264
Issued in January 2018, Revised in October 2018
NBER Program(s):Development Economics

We use a multi-country field experiment that combines random variation at the treatment level with exogenous variation in the length of exposure to treatment to test the effect of a slum-housing intervention on the evolution of housing aspirations of untreated co-resident neighbors over time. Initially after treatment, we observe a huge control- treatment housing gap in favor of treated units. As a result, non-treated households' aspirations to upgrade their dwelling are significantly higher compared to the treatment group, suggesting that they aspire to “keep-up” with the treated Joneses', as in standard models of peer effects. However, eight months later, no effects are found on housing investments and the aspirational effect completely disappears. Estimates based on a structural model of aspiration adaptation show that the decay rate is 38% per month. Our evidence suggests that simply fostering higher aspirations may be insufficient to encourage forward-looking behavior among the poor.

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Document Object Identifier (DOI): 10.3386/w24264

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