the effect of slack diversification and time to recall on stock market reaction to toy recalls abstract past toy recalls have led to an increase in consumer concerns while toy manufacturers and retailers increasingly outsource and create longer supply chains making it more challenging for them to ensure toy safety this article examines firms making toy recall announcements to assess the impact operational characteristics have on the negative stock market reaction to the announcement 135 toy recall announcements in the u s from 1979 to 2016 were analyzed using event study and cross sectional regression while a toy recall announcement results in a negative stock market reaction our results show that greater levels of business diversification inventory slack and a longer time to recall are all associated with a less negative stock market reaction in contrast greater capacity slack is associated with a more negative stock market reaction we find no evidence that geographic diversification or financial slack influences the stock market reaction nor have reactions changed appreciably over time this article contributes to the product harm and product recall literature by focusing on these operational elements managers should be aware of the benefits of greater slack and business diversification while planning their business and the impact of a longer time to recall

you can t save alone commitment in rotating savings and credit associations in kenya abstract this article examines one reason why individuals develop and maintain local level financial savings organizations known as rotating savings and credit organizations or roscas economic theories suggest that individuals form roscas to finance the purchase of a lumpy durable good in response to intrahousehold conflict over savings or to provide themselves with insurance the article proposes an additional hypothesis for rosca participation saving requires discipline and some roscas may be formed to provide a collective mechanism for commitment in the presence of time inconsistent preferences data from 70 roscas located in western kenya indicate that the commitment hypothesis is plausible and broadly consistent with the design and patterns of participation in these roscas as many rosca participants put it you can t save alone

saving incentives for low and middle income families evidence from a field experiment with h r block this paper analyzes the effects of a large randomized field experiment carried out with h r block offering matching incentives for ira contributions at the time of tax preparation about 15 000 h r block clients in 60 offices in predominantly low and middle income neighborhoods in st louis were randomly offered a 20 percent match on ira contributions a 50 percent match or no match the control group brookings institute

why don t the poor save more evidence from health savings experiments using data from a field experiment in kenya we document that providing individuals with simple informal savings technologies can substantially increase investment in preventative health and reduce vulnerability to health shocks simply providing a safe place to keep money was sufficient to increase health savings by 66 percent adding an earmarking feature was only helpful when funds were put toward emergencies or for individuals that are frequently taxed by friends and relatives group based savings and credit schemes had very large effects

social comparisons and contributions to online communities a field experiment on movielens we design a field experiment to explore the use of social comparison to increase contributions to an online community we find that after receiving behavioral information about the median user s total number of movie ratings users below the median demonstrate a 530 percent increase in the number of monthly movie ratings while those above the median decrease their ratings by 62 percent when given outcome information about the average user s net benefit score above average users mainly engage in activities that help others our findings suggest that effective personalized social information can increase the level of public goods provision

banking the poor via savings accounts evidence from a field experiment abstract in a setting with low penetration of bank accounts i randomly gave access to bank accounts with zero fees at local bank branches to a large sample of female household heads in nepal the zero fees and physical proximity of the bank led to high take up and usage rates compared to similar studies in other settings however impact on income aggregate expenditures and assets are too imprecisely estimated to draw a conclusion i do find reallocation of expenditures across categories e g more spending on education and meat and fish and less on health and dowries and higher ability to cope with shocks on qualitative outcomes i find households report that their overall financial situation has improved the lack of a clear story on mechanisms yet strong result on aggregate self perception of financial wellbeing is consistent with access to quality savings accounts leading to household improvements via multiple mechanisms

effects of individual development accounts on asset purchases and saving behavior evidence from a controlled experiment abstract we evaluate the first controlled field experiment on individual development accounts idas including their own contributions and matching funds treatment group members in the tulsa oklahoma program could accumulate 6750 for home purchase or 4500 for other qualified uses almost all treatment group members opened accounts but many withdrew all funds for unqualified purposes among renters at the beginning of the experiment the ida increased homeownership rates after 4 years by 7 11 percentage points and reduced non retirement financial assets by 700 1000 the ida had almost no other discernable effect on other subsidized assets overall wealth or poverty rates

exchange rate hedging financial versus operational strategies exchange rate exposure is an important source of risk for multinational corporations to mitigate the impact of exchange rate fluctuations it has been claimed that multinational corporations can employ risk management strategies not only through financial derivatives but also through operational hedges for example schering plough in its 1995 annual report p 25 argues in support of exclusive use of operational hedges to date management has not deemed it cost effective to engage in a formula based program of hedging the profitability of these operations using derivative financial instruments some of the reasons for this conclusion are the company operates in a large number of foreign countries the currencies of these countries generally do not move in the same direction at the same time conversely many corporations with large worldwide networks such as ibm or coca cola make extensive use of derivative financial instruments this paper investigates both financial and operational exchange rate risk management strategies of multinational firms while several studies have examined either firms financial hedging or firms operational hedging activities no study thus far has examined financial and operational hedging simultaneously for a large cross section of firms to the extent that the decision to use financial hedging strategies is related to and affected by the operational strategies that a firm employs it is important to examine how each strategy contributes to the overall goal of mitigating risk and improving shareholder value using a sample of u s multinational nonfinancial firms during 1996 1998 we find that operational hedging is not an effective substitute for financial risk management however we find that the more geographically dispersed a firm is the more likely it is to use financial hedges the end result on firm value is that operational hedging strategies benefit shareholders only when used in combination with financial hedging strategies

roscas as financial agreements to cope with self control problems abstract we consider a model in which people with limited self control can sign binding financial agreements among themselves thereby forming coalitions we show that these financial agreements may help them to alleviate their self control problems we then demonstrate that there exists a stable structure of coalitions in which people form rotating savings and credit associations roscas we therefore provide a behavioral rationale for one of the most prevalent and puzzling financial institutions in developing countries finally we derive and discuss some empirical predictions

saving more in groups field experimental evidence from chile abstract we test the impact of a peer group program on savings in a sample of microcredit clients we conduct two randomized trials among these 2687 microcredit clients the first finds that a savings group treatment which combines public goal setting monitoring in the group and non financial rewards increases savings in a new savings account significantly the number of deposits grows 3 7 fold and the average balance almost doubles in contrast a more classical measure a substantially increased interest rate has no effect for most participants and raises the savings balance only for the very top of the distribution a second experiment conducted a year later tests an alternative delivery mechanism and shows that effects of similar size can be achieved through feedback text messages without meetings rewards or peer pressure given that participants are borrowing at 90 apr we discuss how and when saving more could be harmful or beneficial

peers at work we study peer effects in the workplace specifically we investigate whether how and why the productivity of a worker depends on the productivity of coworkers in the same team using high frequency data on worker productivity from a large supermarket chain we find strong evidence of positive productiv ity spillovers from the introduction of highly productive personnel into a shift worker effort is positively related to the productivity of workers who see him but not workers who do not see him additionally workers respond more to the presence of coworkers with whom they frequently interact we conclude that social pressure can partially internalize free riding externalities that are built into many workplaces jel j24 l81 m54

the fewer the better number of goals and savings behavior abstract this article examines the effect of the number of goals on consumers savings behavior drawing from research on implementation intention the authors show that under certain conditions presenting a single savings goal leads to greater savings intention and actual savings than presenting multiple savings goals multiple goals typically evoke trade offs among competing goals and thus increase the likelihood that people will remain in a deliberative mind set and defer actions in contrast the authors propose and demonstrate that a single goal evokes a stronger implementation intention which in turn has a greater effect on behavior change they also show that the advantage of a single goal over multiple goals on saving is attenuated when saving is easier to implement or when the multiple savings goals are integrated rather than competing among themselves theoretical and practical implications are discussed

social connections and group banking lending to the poor is expensive due to high screening monitoring and enforcement costs group lending advocates believe lenders overcome this by harnessing social connections using data from finca peru i exploit a quasi random group formation process to find evidence of peers successfully monitoring and enforcing joint liability loans individuals with stronger social connections to their fellow group members i e either living closer or being of a similar culture have higher repayment and higher savings furthermore i observe direct evidence that relationships deteriorate after default and that through successful monitoring individuals know who to punish and who not to punish after default

kin groups and reciprocity a model of credit transactions in ghana this paper studies kinship band networks as capital market institutions membership in a community where individuals are dynastically linked has two effects on informal credit first the nonanonymity of the dynastic link allows to sanction the defaulters offspring and induce compliance even in short term interactions social enforcement second preferential agreements can arise in which kin members condition their behavior on the characteristics of a player s predecessor expecting others to do the same with their offspring reciprocity these effects are incorporated in an olg game with endogenous matching between lenders and borrowers and tested using household level data from ghana

why does the law of one price fail an experiment on index mutual funds we conduct an experiment to evaluate why individuals invest in high fee index funds in our experiments subjects allocate 10 000 across four s p 500 index funds and are rewarded for their portfolio s subsequent return subjects overwhelmingly fail to minimize fees we can reject the hypothesis that subjects buy high fee index funds because of bundled non portfolio services search costs for fees matter but even when we eliminate these costs fees are not minimized instead subjects place high weight on annualized returns since inception fees paid decrease with financial literacy interestingly subjects who choose high fee funds sense they are making a mistake

does the classic microfinance model discourage entrepreneurship among the poor experimental evidence from india do the repayment requirements of the classic microfinance contract inhibit investment in high return but illiquid business opportunities among the poor using a field experiment we compare the classic contract which requires that repayment begin immediately after loan disbursement to a contract that includes a two month grace period the provision of a grace period increased short run business investment and long run profits but also default rates the results thus indicate that debt contracts that require early repayment discourage illiquid risky investment and thereby limit the potential impact of microfinance on microenterprise growth and household poverty jel a21 g32 i32 l25 l26 o15 o16

the economic importance of financial literacy theory and evidence this paper undertakes an assessment of a rapidly growing body of economic research on financial literacy we start with an overview of theoretical research which casts financial knowledge as a form of investment in human capital endogenizing financial knowledge has important implications for welfare as well as policies intended to enhance levels of financial knowledge in the larger population next we draw on recent surveys to establish how much or how little people know and identify the least financially savvy population subgroups this is followed by an examination of the impact of financial literacy on economic decision making in the united states and elsewhere while the literature is still young conclusions may be drawn about the effects and consequences of financial illiteracy and what works to remedy these gaps a final section offers thoughts on what remains to be learned if researchers are to better inform theoretical and empirical models as well as public policy jel a20 d14 g11 i20 j26

self command in practice in policy and in a theory of rational choice an increasingly familiar occurrence for obstetricians is being asked by patients to withhold anesthesia during delivery the physician often proposes that a facemask be put beside the patient who may inhale nitrous oxide as she needs it but some determined patients ask that no such opportunity be provided if gas is available they will use it and they want not to be able to the request is interesting for decision theory and raises questions of ethics policy and physician responsibility even if the woman is merely making a mistake if she simply does not know how painful labor will be and how glad she will be even in retrospect if the pain is relieved but some women who make this request have had earlier deliveries during which they demanded anesthesia and received it they are acquainted with the pain they anticipate asking for relief and they want it withheld when they do they expect to regret afterwards any recourse to anesthesia this particular instance of attempted selfdenial has features that are special but many that are common the woman is so far as we know in good health physically and mentally she anticipates a transient period when her usual values and preferences will be suspended or inaccessible she has reasons for wanting to frustrate her own wishes at the critical time she needs cooperation she may ratify her choice afterward by expressing herself grateful that no anesthesia was offered even when requested there are ethical dilemmas and legal issues and there is conflict if say the husband disagrees with the physician in the delivery room about what his wife really wants

the elasticity of intertemporal substitution new evidence from 401 k participation abstract using health and retirement study data and a structural econometric model we exploit variation in employer matching rates in 401 k plans to generate new estimates of the eis 0 74 in our richest specification with a 95 confidence interval of 0 37 1 21

behavioral foundations of microcredit experimental and survey evidence from rural india microcredit is an innovative financial tool designed to reduce poverty and fix credit market imperfections we use experimental measures of time discounting and risk aversion for villagers in south india to highlight behavioral features of microcredit conditional on borrowing from any source women with present biased preferences are more likely than others to borrow through microcredit institutions microcredit contracts require loan repayments in regular fixed installments and they harness peer pressure to encourage discipline these innovations mirror mechanisms highlighted in behavioral approaches to saving suggesting that microcredit s popularity stems partly from modes of encouragement and self discipline absent in typical lending mechanisms

market incentives for safe foods an examination of shareholder losses from meat and poultry recalls meat and poultry recalls while voluntary are carried out under governmental oversight if firms have financial incentives to avoid being implicated in a recall situation governmental involvement in recalls may cause firms to internalize social costs when making investment decisions concerning food safety controls to examine these incentives we analyze federally supervised meat and poultry recalls from 1982 to 1998 within an event study results show significant shareholder losses when publicly traded food companies are implicated in a recall involving serious food safety hazards we find no evidence that the stock market reacts negatively when recalls involve less severe hazards each year unsafe foods sicken millions and lead to losses in terms of life and productivity mead et al estimate that foodborne pathogens account for 76 million illnesses and 5 000 deaths in the united states given human error and the limitations of food safety technology food items that pose undue risks to the public will be distributed from time to time when this occurs the firms involved stand to incur expenses related to recovering disposing of or reconditioning potentially contaminated products already placed on the market in addition negative publicity can lead to reductions in product demand and may erode prior investments in reputation and brand capital these firms may also face costs from liability claims associated with an outbreak of food related illnesses or injury our main objective in this paper is to examine reductions in food company valuations that result from food contamination incidents we focus specifically on meat and poultry firms that have shipped products that were later recalled for food safety reasons because preventative actions taken by firms can affect the probability of being implicated in a product recall situation the wealth that is lost when companies are required to recall

the role of information and social interactions in retirement plan decisions evidence from a randomized experiment this paper analyzes a randomized experiment to shed light on the role of information and social interactions in employees decisions to enroll in a tax deferred account tda retirement plan within a large university the experiment encouraged a random sample of employees in a subset of departments to attend a benee ts information fair organized by the university by promising a monetary reward for attendance the experiment multiplied by more than e ve the attendance rate of these treated individuals relative to controls and tripled that of untreated individuals within departments where some individuals were treated tda enrollment e ve and eleven months after the fair was signie cantly higher in departments where some individuals were treated than in departments where nobody was treated however the effect on tda enrollment is almost as large for individuals in treated departments who did not receive the encouragement as for those who did we provide three interpretations differential treatment effects social network effects and motivational reward effects to account for these results

participation and investment decisions in a retirement plan the influence of colleagues choices abstract this paper investigates whether peer effects play an important role in retirement savings decisions we use individual data from employees of a large university to study whether individual decisions to enroll in a tax deferred account plan sponsored by the university and the choice of the mutual fund vendor for people who choose to enroll are affected by the decisions of other employees in the same department to overcome the identification problems we divide the departments into sub groups along gender status age and tenure lines and we instrument the average participation of each peer group by the salary or tenure structure in this group our results suggest that peer effects may be an important determinant of savings decisions

two sides of the same rupee comparing demand for microcredit and microsaving in a framed field experiment in rural pakistan standard models often predict that people should either demand to save or demand to borrow but not both we hypothesise instead that saving and borrowing among microfinance clients are substitutes satisfying the same underlying demand for a regular schedule of deposits and a lump sum withdrawal we test this using a framed field experiment among women participating in group lending arrangements in rural pakistan the experiment inspired by the rotating structure of a rosca involves randomly offering credit products and savings products to the same subject pool we find high demand both for credit products and for savings products with the same individuals often accepting both a credit product and a savings product over the three experiment waves this behavior can be rationalised by a model in which individuals prefer lump sum payments for example to finance a lumpy investment and in which individuals struggle to hold savings over time we complement our experimental estimates with a structural analysis in which different types of participants face different kinds of constraints our structural framework rationalises the behaviour of 75 of participants of these rationalised participants we estimate that two thirds have high demand for lump sum payments coupled with savings difficulties these results imply that the distinction between microlending and microsaving may be largely illusory participants value a mechanism for regular deposits and lump sum payments whether that is structured in the credit or the debt domain

mechanism experiments and policy evaluations randomized controlled trials are increasingly used to evaluate policies how can we make these experiments as useful as possible for policy purposes we argue greater use should be made of experiments that identify the behavioral mechanisms that are central to clearly specified policy questions what we call mechanism experiments these types of experiments can be of great policy value even if the intervention that is tested or its setting does not correspond exactly to any realistic policy option

price and control elasticities of demand for savings assumptions about individual demand for savings underlie workhorse models of macroeconomics intertemporal choice and intra household bargaining and policy interventions in a randomized experiment a philippine bank tested sensitivity to interest rates and account ownership requirements in 10 000 door to door solicitations for a commitment savings account the price elasticity is not significantly different than zero for both the full sample and subgroups of plausibly marginal savers and it has an upper bound that implies an elasticity of intertemporal substitution below the 0 7 emphasized by attanasio and weber 2010 nor do we find sensitivity to ownership requirements in the full sample or sub groups

event studies in management research theoretical and empirical issues we examined the use of event studies in management research and found that there was inadequate attention paid to theoretical and research design issues this lack of attention may lead to false in

when commitment fails evidence from a field experiment commitment products can remedy self control problems however imperfect knowledge about their preferences may discontinuously lead individuals to select into incentive incompatible commitments

tying odysseus to the mast evidence from a commitment savings product in the philippines we designed a commitment savings product for a philippine bank and implemented it using a randomized control methodology the savings product was intended for individuals who want to commit now to restrict access to their savings and who were sophisticated enough to engage in such a mechanism we conducted a baseline survey on 1777 existing or former clients of a bank one month later we offered the commitment product to a randomly chosen subset of 710 clients 202 28 4 percent accepted the offer and opened the account in the baseline survey we asked hypothetical time discounting questions women who exhibited a lower discount rate for future relative to current trade offs and hence potentially have a preference for commitment were indeed significantly more likely to open the commitment savings account after twelve months average savings balances increased by 81 percentage points for those clients assigned to the treatment group relative to those assigned to the control group we conclude that the savings response represents a lasting change in savings and not merely a short term response to a new product

goal setting and energy conservation abstract this paper develops a theoretical model of consumer demand for an energy conservation program that involves non binding self set goals we present evidence from a northern illinois goal setting program aimed at reducing residential electricity consumption which is difficult to reconcile with standard preferences and is broadly consistent with a model of present biased consumers with reference dependent preferences we find that the need for commitment is correlated with program adoption higher pre adoption consumption and lower responsiveness to goals consumers choosing realistic goals persistently save substantially more achieving savings of nearly 11 than those choosing very low or unrealistically high goals

on the relative efficiency of performance pay and noncontingent incentives we report evidence from a large field experiment that compares the effectiveness of contingent and noncontingent incentives in eliciting costly effort for a large range of payment levels the company with which we worked sent 7 250 letters asking customers to complete a survey some letters promised to pay amounts ranging from 1 to 30 upon compliance contingent incentives whereas others already contained the money in the request envelopes noncontingent incentives compared to no payment very small contingent payments lower the response rate while small noncontingent payments raise the response rate as expected response rates rise with the size of the incentive offered the response rate in the noncontingent incentives rises more rapidly for low amounts of incentive but then flattens out and reaches lower levels than under contingent payments we discuss how the optimal policy regarding the use of each size and type of incentives crucially depends on firms objectives jel d21 d93

active vs passive decisions and crowd out in retirement savings accounts evidence from denmark using 41 million observations on savings for the population of denmark we show that the effects of retirement savings policies on wealth accumulation depend on whether they change savings rates by active or passive choice subsidies for retirement accounts which rely on individuals to take an action to raise savings primarily induce individuals to shift assets from taxable accounts to retirement accounts we estimate that each 1 of government expenditure on subsidies increases total saving by only 1 cent in contrast policies that raise retirement contributions if individuals take no action such as automatic employer contributions to retirement accounts increase wealth accumulation substantially we estimate that approximately 15 of individuals are active savers who respond to tax subsidies primarily by shifting assets across accounts 85 of individuals are passive savers who are unresponsive to subsidies but are instead heavily influenced by automatic contributions made on their behalf active savers tend to be wealthier and more financially sophisticated we conclude that automatic contributions are more effective at increasing savings rates than subsidies for three reasons i subsidies induce relatively few individuals to respond ii they generate substantial crowd out conditional on response and iii they do not increase the savings of passive individuals who are least prepared for retirement jel codes h2 h3

do rural banks matter evidence from the indian social banking experiment lack of access to finance is often cited as a key reason why poor people remain poor this paper uses data on the indian rural branch expansion program to provide empirial evidence on this issue between 1977 and 1990 the indian central bank mandated that a commercial bank can open a branch in a location with one or more bank branches only if it opens four in locations with no bank branches we show that between 1977 and 1990 this rule caused banks to open relatively more rural branches in indian states with lower initial financial development the reverse is true outside this period we exploit this fact to identify the impact of opening a rural bank on poverty and output our estimates suggest that the indian rural branch expansion program significantly lowered rural poverty and increased non agricultural output

the financial impact of product recall announcements in china abstract a product recall can be viewed as a firm s worst nightmare although the long term damage to brand equity and company reputation may be difficult if not impossible to quantify the short term impact on shareholders wealth is readily estimable while many studies have examined this issue in the western context little is known about the financial impact of a product recall announcement in china to advance the knowledge about the financial impact of a product recall announcement we explore this issue using event study methodology in general our findings are congruent with previous research that product recalls result in negative abnormal returns interestingly however we found that chinese companies suffered from greater financial losses than their western counterparts did this study also provides evidence that the chinese food industry experiences a more severe stock market reaction than the automobile industry and that a passive recall strategy was associated with a more negative stock market reaction than a proactive recall strategy we conclude with several future research avenues for global research on product recalls

event studies in economics and finance the event study is an important research tool in economics and finance the goal of an event study is to measure the effects of an economic event on the value of firms event study methods exploit the fact that given rationality in the marketplace the effects of an event will be reflected immediately in security prices thus the impact can be measured by examining security prices surrounding the event in this paper event study methods are described including some of the potential complications an example is included to illustrate the approach

goal setting and self control abstract this paper addresses the role of non binding goals to attenuate time inconsistency present biased agents have linear reference dependent preferences and endogenously set a goal that is the reference point they face an infinite horizon optimal stopping problem in continuous time when there is sufficient commitment to expectation based goals goal setting attenuates the present biased agent s tendency to stop too early and may even lead an agent to wait longer than the first best in particular reference dependence is strictly worse for a time consistent agent notably none of the effects of goal setting require loss aversion

optimal defaults and active decisions defaults often have a large influence on consumer decisions we identify an overlooked but practical alternative to defaults requiring individuals to make an explicit choice for themselves we study such active decisions in the context of 401 k saving we find that compelling new hires to make active decisions about 401 k enrollment raises the initial fraction that enroll by 28 percentage points relative to a standard opt in enrollment procedure producing a savings distribution three months after hire that would take 30 months to achieve under standard enrollment we also present a model of 401 k enrollment and derive conditions under which the optimal enrollment regime is automatic enrollment i e default enrollment standard enrollment i e default non enrollment or active decisions i e no default and compulsory choice active decisions are optimal when consumers have a strong propensity to procrastinate and savings preferences are highly heterogeneous financial illiteracy however favors default enrollment over active decision enrollment