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Saving by Default: Evidence from a Field Experiment in Rural India

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  • Vincent Somville
  • Lore Vandewalle

Abstract

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.

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  • Vincent Somville & Lore Vandewalle, 2018. "Saving by Default: Evidence from a Field Experiment in Rural India," American Economic Journal: Applied Economics, American Economic Association, vol. 10(3), pages 39-66, July.
  • Handle: RePEc:aea:aejapp:v:10:y:2018:i:3:p:39-66
    Note: DOI: 10.1257/app.20160547
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    Cited by:

    1. repec:aea:aecrev:v:108:y:2018:i:10:p:2868-2901 is not listed on IDEAS
    2. Lisa Spantig, 2019. "Cash in Hand and Savings Decisions," CESifo Working Paper Series 7767, CESifo Group Munich.
    3. Joshua Blumenstock & Michael Callen & Tarek Ghani, 2018. "Why Do Defaults Affect Behavior? Experimental Evidence from Afghanistan," American Economic Review, American Economic Association, vol. 108(10), pages 2868-2901, October.
    4. Pascaline Dupas & Dean Karlan & Jonathan Robinson & Diego Ubfal, 2018. "Banking the Unbanked? Evidence from Three Countries," American Economic Journal: Applied Economics, American Economic Association, vol. 10(2), pages 257-297, April.
    5. Vincent Somville & Lore Vandewalle, 2019. "Access to Banking, Savings and Consumption Smoothing in Rural India," IHEID Working Papers 09-2019, Economics Section, The Graduate Institute of International Studies.
    6. Grohmann, Antonia & Klühs, Theres & Menkhoff, Lukas, 2018. "Does financial literacy improve financial inclusion? Cross country evidence," World Development, Elsevier, vol. 111(C), pages 84-96.
    7. Pierre Bachas & Paul Gertler & Sean Higgins & Enrique Seira, 2017. "How Debit Cards Enable the Poor to Save More," NBER Working Papers 23252, National Bureau of Economic Research, Inc.
    8. Rahul Mehrotra & Vincent Somville & Lore vandewalle, 2016. "Increasing trust in the bank to enhance savings: Experimental evidence from India," CMI Working Papers 1, CMI (Chr. Michelsen Institute), Bergen, Norway.
    9. Singh, Nirvikar, 2018. "Financial Inclusion: Concepts, Issues and Policies for India," MPRA Paper 91047, University Library of Munich, Germany.
    10. repec:eee:deveco:v:135:y:2018:i:c:p:160-175 is not listed on IDEAS
    11. Eva Haaser & Melanie Koch, 2019. "Do Default Assignments Increase Savings of the Poor? Empirical Evidence," DIW Roundup: Politik im Fokus 130, DIW Berlin, German Institute for Economic Research.
    12. Casaburi, Lorenzo & Macchiavello, Rocco, 2018. "Firm and Market Response to Saving Constraints: Evidence from the Kenyan Dairy Industry," CAGE Online Working Paper Series 367, Competitive Advantage in the Global Economy (CAGE).
    13. Casaburi, Lorenzo & Macchiavello, Rocco, 2019. "Demand and supply of infrequent payments as a commitment device: evidence from Kenya," LSE Research Online Documents on Economics 100180, London School of Economics and Political Science, LSE Library.

    More about this item

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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