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The trade-off between liquidity and insurance: voucher payments in a lab-in-the-field experiment with Colombian rural workers

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  • Cano, Alexander
  • Cortés, Darwin
  • Mantilla, César
  • Prada, Laura
  • Restrepo, Medardo

Abstract

We conduct a lab-in-the-field experiment in which 214 rural workers must choose between a cash or a voucher payment for completing a real-effort task. Participants face a twenty-percent chance of suffering a negative shock that will reduce their cash payment by roughly two-thirds. Opting for the voucher reduces the likelihood of the shock by one-half. We employ a multiple-price list with a varying voucher payment and a fixed cash payment to study this trade-off relevant for expanding the coverage and contributions of rural labor formalization. Voucher take-up rates go from 32% to 56%, from the least to the more generous voucher. In a sample of undergrad students from the same region, take-up rates went from 17% to 33%. We find that voucher redemption costs explain take-up among students but not among rural workers. Being a rural worker with land, and receiving government subsidies in cash, predict a higher voucher take-up.

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  • Cano, Alexander & Cortés, Darwin & Mantilla, César & Prada, Laura & Restrepo, Medardo, 2022. "The trade-off between liquidity and insurance: voucher payments in a lab-in-the-field experiment with Colombian rural workers," Working papers 88, Red Investigadores de Economía.
    • Handle: RePEc:rie:riecdt:88
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    More about this item

    Keywords

    agriculture; dual labor market; informal labor market;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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