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 -