Human Capital Investment by the Poor: Informing Policy with Laboratory and Field Experiments

The purpose of the study is to collect information that can be used to design a policy to induce the poor to invest in human capital. We use laboratory experimental methodology to measure the preferences and choices of the target population of a proposed government policy. We recruited 256 subjects in Montreal, Canada; 72 percent had income below 120 percent of the Canadian poverty level. The combination of survey measures and actual decisions allows us to better understand individual heterogeneity in responses to different subsidy levels. Two behavioral characteristics, patience and attitude towards risk, are key to understanding the determinants of educational investment for the low-income individuals in this experiment. The decision to save for a family member’s education is somewhat different from that of investing in one’s own education. Again, patient participants were more likely to save for a family member’s education, but in contrast to investing in one’s own education, a subject’s attitude towards risk played no role. Le but de cette étude est de recueillir des informations pour concevoir une politique publique afin d’inciter les pauvres à investir en capital humain. Nous utilisons l’approche expérimentale pour mesurer les préférences et les choix de la population ciblée. Nous avons recruté 256 sujets à Montréal. 72 % avaient un revenu inférieur à 120 % pour cent du seuil de faible revenu de Statistique Canada. La combinaison de mesures d'enquête et les décisions réelles nous permettent de mieux comprendre l'hétérogénéité individuelle dans les réponses aux différents niveaux de subvention. Deux caractéristiques comportementales, la patience (désir d’épargne) et l'attitude envers le risque, sont essentielles à la compréhension des déterminants de l'investissement éducatif pour les personnes à faible revenu dans cette expérience. La décision d’investir dans l'éducation d'un membre de la famille est quelque peu différente de celle d'investir dans sa propre éducation. Encore une fois, les participants les plus patients sont les plus susceptibles d'épargner pour l'éducation d'un membre de la famille, mais au contraire, investir dans sa propre éducation, l'attitude d'un sujet vis-à-vis le risque ne joue aucun rôle.Intertemporal choice, field experiments, risk attitudes, working poor, choix intertemporels, expériences sur le terrain, les attitudes vis-à-vis le risque, travailleurs pauvres

Will the Working Poor Invest in Human Capital? A Laboratory Experiment

This paper presents the results of a laboratory experiment involving some 250 subjects in the Montreal area. The experiment focused on three main questions : (1) Will the working poor invest in various assets? (2) Are these subjects willing to delay consumption for substantial returns? (3) How do these subjects view risky choices? Answering these questions will help answering the key research question : Given the right incentive, will the working poor save to invest in human capital? To view the report, please click here : www.srdc.org/english/publications/workingpoor.pdf Ce rapport présente les résultats d'une expérience en laboratoire impliquant environ 250 sujets résidant dans la région de Montréal. L'expérience tente de répondre à trois questions : 1) Les travailleurs à faible revenu investissent-ils dans des actifs diversifiés?; 2) Les sujets sont-ils prêts à reporter leur consommation dans le futur en échange de rendements financiers substantiels?; 3) Comment ces sujets perçoivent-ils les choix risqués? Les réponses à ces questions vont permettre d'éclairer le sujet principal de cette recherche menée par le SRDC, à savoir : Si on leur procure les bonnes incitations, les travailleurs à faible revenu auront-ils tendance à épargner pour investir dans du capital humain? Pour visionner l'intégralité du rapport cliquez ici : http://www.srdc.org/uploads/workingpoor.pdf

Saving Decisions of the Working Poor: Short-and Long-Term Horizons

We explore the predictive capacity of short-horizon time preference decisions for long-horizon investment decisions. We use experimental evidence from a sample of Canadian working poor. Each subject made a set of decisions trading off present and future amounts of money. Decisions involved both short and long time horizons, with stakes ranging up to six hundred dollars. Short horizon preference decisions do well in predicting the long-horizon investment decisions. These short horizon questions are much less expensive to administer but yield much higher estimated discount rates. We find no evidence that the present-biased preference measures generated from the short-horizon time preference decisions indicate any bias in long-term investment decisions. We also show that individuals are heterogeneous with respect to discount rates generated by short-horizon time preference decisions and long-horizon time preference decisions. Dans cet article, nous évaluons si les préférences exprimées pour le présent peuvent prédire les décisions d’investissement dans le long terme. L’article mobilise l’approche de l’économie expérimentale avec comme participants des travailleurs canadiens à faibles revenus. Chaque participant est invité à choisir entre une somme qu’il peut toucher à très court terme et un montant plus élevé, mais qui ne lui sera versé que plus tard dans le temps. Pour certains choix, les montants ne seront disponibles que dans 7 ans et peuvent atteindre jusqu’à 600 $. Nous trouvons que les décisions entre le présent et un horizon de court terme permettent de prédire les arbitrages réalisés par les participants entre le présent et des décisions à plus long terme. Ce résultat est important dans la mesure où il est plus difficile et coûteux d’étudier les décisions de long terme que celles de court terme. Nous observons également une forte hétérogénéité entre les participants relativement à leurs taux d’escompte de court et de long terme.intertemporal choice, field experiments, risk attitudes, choix intertemporels, économie expérimentale, attitudes vis-à-vis le risque

The Effect of Perfect Monitoring of Matched Income on Sales Tax Compliance: An Experimental Investigation

Noncompliance is a quantitatively important phenomenon that affects significantly revenue source for state governments. This phenomenon raises challenging questions about the determinants of tax reporting and also about the appropriate design of a tax system: how many resources should be devoted to auditing? This paper provides specific empirical insights using an experimental approach to measure the effects of systematic sales tax monitoring and the determinants of sales tax compliance. The results indicate that if perfect monitoring is instituted without other complementary policies, an increase in tax revenues is not the likely outcome. A successful policy aiming at reducing fiscal fraud might be a difficult task, once people have decided their equilibrium level of tax compliance. The reference-dependent effect observed in the data suggests that individuals will try to recover their losses following any policy changes even if it means taking more risks. Les revenus de plusieurs niveaux de gouvernements sont significativement altérés par la fraude fiscale. Découvrir les déterminants de la fraude fiscale est un défi important alors que ce phénomène pose en même temps la question du design du système de taxation. Combien de ressources devons-nous, par exemple, consacrer à l’audit? Cette recherche mobilisant l’économie expérimentale offre une analyse empirique sur les effets d’assurer systématiquement le contrôle de la taxe de vente et d’étudier les déterminants de s’acquitter du paiement de ce type de taxes. Les résultats indiquent que le contrôle parfait de la taxe de vente sans politiques complémentaires n’augmentent pas nécessairement les rentrées fiscales. Une politique efficace pour réduire la fraude fiscale s’avère une tâche difficile si les agents impliqués ont décidé d’un niveau d’équilibre de conformité dans le paiement de leurs taxes. Les données montrent que les participants tendent à recouvrer leurs pertes suite à un changement de politique fiscale même s’ils doivent prendre plus de risques pour y arriver.sales tax, perfect monitoring, experimental economics, reference-dependent effect., taxe de vente, fraude fiscale, économie expérimentale, politiques d’audit.

Does Information Transparency Decrease Coordination Failure?

This study experimentally tests the effect of information transparency on the probability of coordination failure in global games with finite signals. Prior theory has shown that in global games with unique equilibrium, the effect of information transparency is ambiguous. We find that in global games where the signal space is finite, increased transparency has two effects. First, increasing the level of transparency usually destroys uniqueness and precipitates multiple equilibria, so that the effect of transparency on coordination depends crucially upon which equilibrium is actually attained. Second, the level of transparency determines which of these equilibria is risk dominant. We find that increased transparency facilitates coordination only if it switches the risk-dominant equilibrium from the secure equilibrium to the efficient equilibrium. When the converse is true, improved transparency can be dysfunctional because it increases the probability of coordination failure.

Tragedy of the common canal

This paper uses laboratory experiments to investigate the effects of alternative solutions to a common-pool resource with a unidirectional flow. The focus is on the comparative economic efficiency of communications, bilateral “Coasian” bargaining, auctions and price-based allocations. All treatments improve allocative efficiency relative to a baseline environment. Communication and bilateral bargaining are not generally as effective as market allocations. An exogenously imposed, optimal fee results in the greatest efficiency gain, followed by auction allocations that determine the usage fee endogenously.externalities, experiments, auctions, Coasian bargaining, common pool resource

High Stakes Behavior with Low Payoffs: Inducing Preferences with Holt-Laury Gambles

A continuing goal of experiments is to understand risky decisions when the decisions are important. Often a decision’s importance is related to the magnitude of the associated monetary stake. Khaneman and Tversky (1979) argue that risky decisions in high stakes environments can be informed using questionnaires with hypothetical choices (since subjects have no incentive to answer questions falsely.) However, results reported by Holt and Laury (2002, henceforth HL), as well as replications by Harrison (2005) suggest that decisions in “high” monetary payoff environments are not well-predicted by questionnaire responses. Thus, a potential implication of the HL results is that studying decisions in high stakes environments requires using high stakes. Here we describe and implement a procedure for studying high-stakes behavior in a low-stakes environment. We use the binary-lottery reward technique (introduced by Berg, et al (1986)) to induce preferences in a way that is consistent with the decisions reported by HL under a variety of stake sizes. The resulting decisions, all of which were made in a low-stakes environment, reflect surprisingly well the noisy choice behavior reported by HL’s subjects even in their highstakes environment. This finding is important because inducing preferences evidently requires substantially less cost than paying people to participate in extremely high-stakes games.

Evolution of Conventions in Endogenous Social Networks

We analyze the dynamic implications of learning in a large population coordination game where both the actions of the players and the communication network between these players evolve over time. We depart from the conventional models in assuming that the interaction network itself is subject to evolutionary pressure. Cost considerations of social interaction are incorporated by application of a circular model in which all players are located at equal distances along a circle. Although the locations of the players are fixed they can create their own interaction neighborhood by forming and severing links with other players. The spatial structure of the model is then used to determine the costs of establishing a communication link between a pair of players. Namely, we assume that the larger the distance between two players on the circle, the larger the maintenance costs of the mutual link will be. As maintenance costs include invested time and effort, distance should not only be interpreted as physical distance but may also represent social distance. We follow standard evolutionary game theoretic practice to determine the equilibria in this setting. The resulting equilibrium represents the players' medium run behavior if perturbations representing players' mistakes are absent. We find that in this medium run case, the dynamic process converges to an absorbing state. These absorbing states include ones in which there emerge local conventions, i.e., fully connected neighborhoods of players who coordinate on the same strategy. In the ultralong run, i.e., when perturbations representing players' mistakes are taken into account, coexistence of conventions is no longer possible. We show that the risk-dominant convention is the unique stochastically stable convention, meaning that it will be observed almost surely when the mistake probabilities are small but nonvanishing. This confirms the insights obtained in Ellison (1993) for fixed spatial interaction structures.

Development and validation of a professional behavior assessment.

Allied health students must quickly socialize into a professional role as they transition from classroom to clinic. In addition to skill development, students must exhibit a host of professional behaviors that facilitate successful interaction with patients, families, and colleagues. There is a need for a valid, reliable assessment of professional behaviors that contribute to clinical competence. This study reports on the development and validation of a professional behavior assessment for occupational therapy students on a part-time clinical rotation (Level I). The Philadelphia Region Fieldwork Consortium (PRFC) Level I Student Evaluation was developed from an initial survey (n = 75) to generate an item pool, followed by a content review by a panel of experts (n = 5) to establish relevancy, clarity and content validity. This 12-item instrument was administered to 317 occupational therapy and occupational therapy assistant students. A principal component factor analysis and item analysis was conducted. Internal consistency reliability (Cronbach\u27s alpha) was 0.89, with intra-rater reliability for the 12 items ranging from 0.68 for written communication to 0.89 for observation skills. The PRFC Level I Evaluation demonstrates discriminant validity, with students on their first clinical rotation scoring significantly (p \u3c 0.001) lower than students on their third or fourth rotations, indicating a developmental process of professional socialization

High Stakes Behavior with Low Payoffs: Inducing preferences with Holt-Laury gambles

A continuing goal of experiments is to understand risky decisions when the decisions are important. Often a decision’s importance is related to the magnitude of the associated monetary stake. Khaneman and Tversky (1979) argue that risky decisions in high stakes environments can be informed using questionnaires with hypothetical choices (since subjects have no incentive to answer questions falsely.) However, results reported by Holt and Laury (2002, henceforth HL), as well as replications by Harrison (2005) suggest that decisions in “high” monetary payoff environments are not well-predicted by questionnaire responses. Thus, a potential implication of the HL results is that studying decisions in high stakes environments requires using high stakes. Here we describe and implement a procedure for studying high-stakes behavior in a low-stakes environment. We use the binary-lottery reward technique (introduced by Berg, et al (1986)) to induce preferences in a way that is consistent with the decisions reported by HL under a variety of stake sizes. The resulting decisions, all of which were made in a low-stakes environment, reflect surprisingly well the noisy choice behavior reported by HL’s subjects even in their highstakes environment. This finding is important because inducing preferences evidently requires substantially less cost than paying people to participate in extremely high-stakes games