Saving by Default: Evidence from a Field Experiment in Rural India
New published paper in American Economic Journal: Applied Economics by Vincent Somville and Lore Vandewalle (The Graduate Institute Geneva): "Saving by Default: Evidence from a Field Experiment in Rural India".
Access to banks is rapidly increasing worldwide, and allows account-based instead of cash transfers. We conduct a randomized experiment documenting the impact of the payment method on savings behavior. In India, we allocate identical weekly payments into a bank account (treated) or in cash (control). Savings in the account increase by 131 percent within three months, and the effect is long lasting. We also show that cash payments increase consumption and that—once everyone is paid in cash again—the saving patterns no longer differ. We interpret these findings as a default effect, and we further discuss plausible mechanisms.