Time Discounting and Credit Market Access in a Large Scale Cash Transfer Program

Time preference, the weight that individuals give to future over current consumption, is a characteristic that is thought to influence decision-making in almost every sphere of life, including personal finances, diet, exercise, sexual behavior and the environment. In this article we provide evidence on whether a national poverty alleviation program in Kenya can affect inter-temporal decisions. We administered a preferences module as part of a large-scale impact evaluation of the Kenyan Government’s Cash Transfer for Orphans and Vulnerable Children. Four years into the program we find that individuals randomized to the treatment group are only marginally more likely to wait for future money. However among the poorest households for whom the value of transfer is still relatively large we find significant program effects on the propensity to wait. We also find strong program effects among those who have access to credit markets and are thus less liquidity constrained to begin with, though the program itself does not improve access to credit. The results demonstrate a unique and potentially powerful way in which large-scale unconditional cash transfers can contribute to economic development in Africa. And the external validity of the results is likely high given the similarity of the Kenyan program to other national programs in the region.