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.
Learning to give preference to long-term goals over more immediate ones is known as deferred gratification or patience and considered a virtue in many cultures. However, there is logic behind asking for rewards immediately, and those who live in poverty know this all too well.
The comedian Jerry Seinfeld, once joked “I never get enough sleep. I stay up late at night because I’m ‘night guy’. ‘Night guy’ wants to stay up late. ‘What about getting up after five hours of sleep?’ ‘Oh, that’s morning guy’s problem. That’s not my problem—I’m night guy! I stay up as late as I want.’
Such decisions are described by the theory of intertemporal choice, the idea that decisions have consequences that come at different points in time. People weigh the relative trade-offs of getting what they want in the immediate future with the trouble associated with waiting but potentially getting something better.
We all face these kinds of decisions in our day-to-day lives, from deciding to work now or later or save or spend money, to whether or not we should stay up late to enjoy the night or go to bed early to feel better the next day. In each of these cases, a decision maker needs to assess the utility (or value) of one outcome that is will occur sooner with another one that is more distant in the future.
- 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.
These are some of the views and reports relevant to our readers that caught our attention this week.
Mapping Digital Media: Global Findings
Open Society Foundation
Is a world where there are almost as many mobile phones as people, more than half the globe can access digital TV signals, and almost 3 billion people are online a better place for journalism? The Global Findings of the Mapping Digital Media project assess these and other forces affecting digital media and independent journalism worldwide. Researched and written by a team of local experts, the 56 country reports, from which these Global Findings are drawn, examine the communication and media environments in 15 of the world’s 20 most populous countries, covering more than 4.5 billion of the world’s population, and in 16 of the world’s 20 largest economies.
Global Inequality: What to Address?
We normally would not expect a seven-hundred-page scholarly tomb full of numbers and figures written by an academic to become an international bestseller. The success of Capital in the Twenty-First Century by Thomas Piketty indicates that the public discontent caused by the rising inequality in the modern capitalist societies may have reached a boiling point. The debate surrounding Capital has been intensely polarizing, inciting passionate responses from the intelligentsia of both the Left and the Right.
Since the 1990s, a large part of world savings have gone to institutional investors that manage those funds by investing around the world. Given this accumulation of resources in professional and sophisticated asset managers, one might expect to see significant international diversification accompanying this process. Yet, to date, little evidence exists on how institutional investors allocate their portfolios globally, and what effect their investment practices have on investors, firms, and policymakers.
In a new paper and VoxEU column, we argue that global funds (those that invest anywhere in the world) are not very well diversified, hold a very limited number of stocks (around 100), and seem to leave behind significant unexploited gains from international diversification. Thus, global funds might not constitute the optimal portfolio for individual investors. Moreover, there are significant challenges to the prospects for broad international diversification. To the extent that global funds continue expanding relative to the more specialized funds (those that invest in specific asset classes and regions), the forgone diversification gains could be significant, and the cost to investors, firms, and countries might be large as well, posing significant challenges to policymakers.
These are exciting times in the world of financial inclusion. In the past few years, policymakers and private-sector leaders have made some bold and innovative moves to modernize financial infrastructures and expand financial access. Mobile money products have seen impressive growth in parts of Sub-Saharan Africa; bank agents are expanding access to underserved populations; and governments are increasingly disbursing payments via formal bank accounts.
Nevertheless, large challenges remains in the financial inclusion agenda: 76 percent of adults – almost 500 million people - in Sub-Saharan Africa remain outside the formal financial system and 36% of these unbanked report that having a formal account is too expensive. To continue moving forward we need to assess financial behavior and understand where the challenges and opportunities lie for the future. To do that, we need high-quality, multi-dimensional, comparable financial inclusion data.
And so, in April the World Bank Development Research Group released the Global Findex, an individual-level dataset that measures how adults in 148 economies save, borrow, make payments, and manage risk. The Global Findex is just one of the foundations of the G20 Basic Set of Financial Inclusion Indicators that was formally proposed by the Global Partnership for Financial Inclusion (GPFI) in Los Cabos this week.
So say 87% of the respondents in a survey used by Dupas and Robinson in an interesting forthcoming paper on what happens when you help people get set up with bank accounts in Kenya. And, as we will see, this problem seems to be particularly acute for women.
The phenomenal success of Kenya’s M-PESA system, which allows people to store and transfer funds via electronic accounts that they access via mobile phones, has raised hopes that mobile money may provide a way for the poor to access basic banking services. In an earlier post, I presented findings from my recent working paper with Aaron Thegeya, showing that a remarkable 73% of Kenyan adults use mobile money, and nearly a quarter use it every day.
We also show that savings with a simple M-PESA account is common, with 2/3 of M-PESA users reporting that they save in some form with M-PESA. We see some mild evidence that M-PESA may increase savings: controlling for various characteristics, those who are registered for M-PESA are 32 percent more likely to report some savings activity.
Why do people save with M-PESA when it doesn’t pay interest? A possible explanation comes from an experimental study on health savings (not involving M-PESA).