Econ Research Seminar by Changcheng Song (SNU) on Friday, May 11 2018
Incentives, Contract Design and Pension Contribution: Evidence from Sri Lanka
Date: Friday, May 11
Time: 1-2 pm
Venue: Room 1300
Abstract:
We conduct several randomized controlled trials in more than 100 villages in Sri Lanka to study what incentives and contract designs generate higher participation and savings in the micro pension. In Experiment I, we randomize the method of delivering subsidy, and the degree of commitment. Individual are randomly assigned to a control group, a free installment group, and a matching group. We find that a free installment for the first month contribution increases the pension participation from 5 percentage points to 35 percentage points, and increases the pension contribution by 10 times. A 100% matching for the first month contribution also increases the participation and contributions, but the effect is smaller. Higher degree of commitment (higher withdraw penalty) slightly reduce the pension participation, but it is not significant. We show that the results can be explained by that free Installment group attracts more present bias agents, and present bias agents are more likely to participate in the pension when they do not need to pay first month contribution. In Experiment II, we further compare pension contract with one account and two accounts including a liquid account and a commitment account. Individuals are randomly assigned to four groups: one account pension with high withdraw penalty, two account pension with low withdraw penalty, two account pension with high withdraw penalty, and a choice group in which they choose one account or two account with high withdraw penalty. We find that, two account pension with high withdraw penalty and the choice group have 9.4 percentage points and 10.9 percentage points more participation compared to one account pension, respectively. We show that high commitment contract attracts more sophisticated agents, and higher degree of commitment increase the pension participation more for sophisticated agents. These results are consistent with the theory of optimal illiquidity.
Prof. Song’s website:
https://sites.google.com/site/songchch02/
Date: Friday, May 11
Time: 1-2 pm
Venue: Room 1300
Abstract:
We conduct several randomized controlled trials in more than 100 villages in Sri Lanka to study what incentives and contract designs generate higher participation and savings in the micro pension. In Experiment I, we randomize the method of delivering subsidy, and the degree of commitment. Individual are randomly assigned to a control group, a free installment group, and a matching group. We find that a free installment for the first month contribution increases the pension participation from 5 percentage points to 35 percentage points, and increases the pension contribution by 10 times. A 100% matching for the first month contribution also increases the participation and contributions, but the effect is smaller. Higher degree of commitment (higher withdraw penalty) slightly reduce the pension participation, but it is not significant. We show that the results can be explained by that free Installment group attracts more present bias agents, and present bias agents are more likely to participate in the pension when they do not need to pay first month contribution. In Experiment II, we further compare pension contract with one account and two accounts including a liquid account and a commitment account. Individuals are randomly assigned to four groups: one account pension with high withdraw penalty, two account pension with low withdraw penalty, two account pension with high withdraw penalty, and a choice group in which they choose one account or two account with high withdraw penalty. We find that, two account pension with high withdraw penalty and the choice group have 9.4 percentage points and 10.9 percentage points more participation compared to one account pension, respectively. We show that high commitment contract attracts more sophisticated agents, and higher degree of commitment increase the pension participation more for sophisticated agents. These results are consistent with the theory of optimal illiquidity.
Prof. Song’s website:
https://sites.google.com/site/songchch02/