TY  - JOUR
AU  - Afzal, Uzma
AU  - D'Adda, Giovanna
AU  - Fafchamps, Marcel
AU  - Quinn, Simon R
AU  - Said, Farah
TI  - Implicit and Explicit Commitment in Credit and Saving Contracts: A Field Experiment
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 25802
PY  - 2019
Y2  - May 2019
DO  - 10.3386/w25802
UR  - http://www.nber.org/papers/w25802
L1  - http://www.nber.org/papers/w25802.pdf
N1  - Author contact info:
Uzma Afzal
University of Nottingham
Nottingham
United Kingdom
E-Mail: uzmaafzal1@gmail.com

Giovanna D'Adda
Department of Economics, Management
 and Quantitative Methods (DEMM)
University of Milan
 Via Conservatorio 7
20122 Milan 
Italy
E-Mail: giovanna.dadda@unimi.it

Marcel Fafchamps
Freeman Spogli Institute
Stanford University
616 Serra Street
Stanford, CA 94305
Tel: 650/497-4602
E-Mail: fafchamp@stanford.edu

Simon Quinn
Department of Economics
Oxford University
UK
E-Mail: simon.quinn@economics.ox.ac.uk

Farah Said
Lahore School of Economics
Lahore
Pakistan
E-Mail: farahz3@gmail.com
AB  - We 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 (in the form of reminders), hard commitment (in the form of a penalty for missing an installment), and flexibility (an option to postpone an installment). Our design is unique in the literature for allowing us to test — using the same respondent population — how demand for explicit commitment features differs between loan and savings contracts. We find substantial demand for both credit and savings contracts but no demand for additional commitment features — either in isolation or in combination — in spite of their  effectiveness in improving repayment. In particular, demand for savings is insensitive to explicit commitment 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. They show that demand for commitment depends on whether commitment features are implicit or explicit.
ER  -