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Unmet Liquidity Needs and the Spread of Sports Betting: Guest post by Sylvan Herskowitz

This is the tenth in our job market paper series this year.
In developing countries, the high costs of credit along with varied impediments to saving, make it challenging for people to raise large sums of liquidity needed for large and indivisible, or “lumpy,” expenditures.  An emerging body of evidence has shown how these constraints push people towards second-best strategies to address their financial needs (Collin et al. 2009 and Banerjee and Duflo 2007).  My job market paper, “Gambling, Saving, and Lumpy Expenditures: Sports Betting in Uganda”, looks at the behaviors of 1,715 bettors in Kampala, Uganda and provides evidence that unmet liquidity needs push people towards sports betting as an unexpected alternative method of liquidity generation.

Weekly links December 19: Savings, basic incomes, skill gaps & M&Ms, and more…

David McKenzie's picture
  • On the FAI blog Tim Ogden discusses what we mean by savings when we talk about it as an outcome.
  • A snapshot of the job market this year from 538 – what the next generation of economists is working on? Development is pretty popular, corporate finance and international economics not so much.
  • Testing basic incomes: the Guardian reports on an experiment in India, where Unicef funded an unconditional basic income scheme. A “modified randomized control trial” (whatever that is) assigned everyone in 8 treatment villages to receive a monthly income for 18 months, with 12 control villages: “the basic incomes resulted in more economic activity and work. Conventional labour statistics would have picked that up inadequately. There was a big increase in secondary economic activities, as well as a shift from casual wage labour to own-account farming and small-scale business” Haven’t come across an academic paper with the results or more details.

Long-term effects of a short-term boost to savings – are mental accounts the key to why more small businesses don’t take advantage of high returns?

David McKenzie's picture
Standard economic theory would suggest that a one-time infusion of cash should have at most a temporary effect on business profitability – over time, individuals facing high returns should be able to re-invest business profits and bit-by-bit bootstrap themselves up to the steady-state size. Yet in an experiment I did with Suresh de Mel and Chris Woodruff in Sri Lanka, we find a one-time grant has sustained impacts five years later on male microenterprise owners.