Behavioural Development Economics: Lessons from Field Labs in the Developing World

The now established field of experimental economics uses lab experiments to test behavioural assumptions and hypothesis of our standard models of decision-making (eg. if individuals have self-interested preferences). There is fair amount of evidence challenging our classical assumptions, and showing that these could matter at an aggregate level (eg. The World Development Report, 2015). This has led to incorporating behavioural and experimental insights into our models as well as policy initiatives. However, such evidence mostly comes from experiments in labs on students in developed countries. A newer strand of experimental and behavioural economics, Behavioural Development Economics, takes such experiments to the field usually in developing communities to better understand the underpinnings of development. Cardenas & Carpenter (2008) provide a review of the literature with a focus on experiments on individual preferences in developing contexts.

Why might such behavioural experiments be especially important in developing contexts? First, there is often a lack of formal institutions and norms, increasing sociological and information constraints. We would like to study how these effect individuals preferences and decision-making. Second, it could help us better understand the underlying mechanisms of persistent puzzles and policy failures that are specific to developing contexts and need urgent attention. For example, it has been noted that in the absence of formal institutions there can be a lack cooperation that can be particularly harmful in developing contexts. One such case is that of common pool resources like forests, fisheries that often need formal or local community based cooperation mechanisms to avoid over-use. The absence of such mechanisms can be detrimental for health as well as conservation of resources.

Out of the four types of individual preferences covered in the paper, we focus on –            the propensity to cooperate in social dilemmas.

Social dilemmas are situations in which individual incentives are at odds with the group incentive. Two common social dilemmas especially in developing communities (as there might not be any central coordination) are the use of public goods and common pool resources as described above. The basic question arises –are the preference of individuals in such communities that of self-interest or do they cooperate? How do the preferences vary and evolve with factors like local norms, institutions?

Before we dive into the findings of the literature, let us look at how economists measure such individual preferences. The usual experiments used to study cooperativeness are :  the prisoner’s dilemma (PD), the voluntary contribution mechanism or public good game (VCM), and the common pool resource game (CPR). Details of these can be found in Cardenas & Carpenter (2008). Each of these sets up a social dilemma in which the dominant strategy for each player leads to a socially inefficient outcome, while the other strategies lead to a socially efficient outcome. If players have self-interested preferences then the game would result in the dominant outcome and no cooperation between players would take place.

The literature review in Cardenas & Carpenter (2008) includes studies from developing communities (field experiments) in China, South Africa, Zimbabwe, Vietnam, Thailand, Kenya, Russia, Peru, Chile, Colombia. The results of these are compared to results of the same games (lab experiments) from the United States.

What do the studies find?

Some players (30-50%) deviate from the dominant strategy by cooperating in all the three types of games. This is in-line with what has been seen in lab experiments across the developed countries. However, cooperation rates are higher and sustained longer in repeated versions of the games among poor participants in developing contexts.

What is interesting is that people cooperate in heterogeneous ways, and we need to understand and account for this. When is it more likely that people cooperate based on this literature? And, can we use these findings to enable or increase cooperation?

Sanctions : Allowing for social sanctions or even simply interaction among the players between rounds increases cooperation in all experiments.

This finding has already been used to enable sustained cooperation between individuals. For example, in numerous developing contexts when formal, enforcing institutions and norms are absent, informal local enforcement (like sanctions, mutual monitoring) is used to promote sustained cooperation. One such case is the success of micro credit through group lending in the absence of formal credit options, where cooperation is maintained through the local enforcement mechanism.

Information : In a household allocation decision experiment in Philippines, Ashraf (2005) finds that men allocate money very differently between themselves and their family, based on whether the information about their decision is shared with their wives. They are more likely to keep money for themselves than the family if they can hide their choice.

Given that information cues foster conditional cooperation, we could build them into design of programs and policies. For example, if a cash transfer cannot be made to the woman (eg. she has no bank account) then we should create a channel of information to her with the information about the transfers.

Group composition: more homogeneous groups tend to cooperate more, for example, mixing economic classes or nationalities decreases cooperation in the above games.

In conclusion, the paper of Cardenas & Carpenter (2008) highlights that the main contribution of the literature till now has been to establish a field methodology. In terms of cooperation, the current evidence suggests an inverse relationship between norms of cooperation and development, though the pattern is not perfect. The question that arises is – how can we enhance such ‘natural’ cooperation norms to ensure better outcomes in developing contexts. Many open questions remain on this front as we further explore preference heterogeneity using tools of behavioural development economics.


References

Cardenas, Juan Camilo, and Jeffrey Carpenter. “Behavioural development economics: Lessons from field labs in the developing world.” The Journal of Development Studies 44.3 (2008): 311-338.

World Bank Group (2015), World Development Report 2015: Mind, Society, and Behaviour. Washington, DC: World Bank.

 

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