Title: Essays on Development Economics
Description: This dissertation contains three essays in Development Economics. The first two chapters relate to the provision of credit for agricultural production in a developing country. The third chapter explores methodological issues in the measurement of risk aversion using laboratory experiments. Risk aversion has been suggested as a theoretical explanation for credit constraints in agricultural settings in developing countries. Better measures of risk aversion can be used to empirically validate these theories. In Chapter 1 of this dissertation, I study the consequences of the use of credit scoring systems for agricultural lending in developing countries. Credit scoring has become a widespread tool to assess the creditworthiness of prospective borrowers, and has been found to increase efficiency and welfare in many settings. This chapter identifies a shortcoming in existing credit scoring systems that may lead to a market failure in agricultural lending in developing countries: Farmers' scores -- and their access to credit -- decline because of exogenous short-term weather shocks that do not reduce their likelihood of future repayment.

I use data on the near universe of formal agricultural loans for coffee production in Colombia to show that excess rainfall shocks cause lower concurrent loan repayment, lower credit scores, and more frequent denial of subsequent loan applications. Then, I draw on the agronomic literature on coffee production and use survey data to show that productivity, income and repayment behavior recover faster from these shocks than farmers' credit histories. In the chapter I argue that these additional loan denials create costs for both farmers and the lender that could be avoided. The results presented in this chapter suggest that incorporating verifiable information on individual level shocks into credit scores would increase the efficiency of credit markets. In Chapter 2, together with Jairo Esquivel, Margarita Gáfaro, Guillermo Otero and Moisés Mahecha, I study the determinants of repayment of loans to a public development bank. In particular, we investigate whether the public nature of a lender affects the repayment behavior of its borrowers.

We conducted a field experiment where customers who receive reminder phone calls before a payment installment of loans were randomly assigned to different phone call scripts. The loans are from a public agricultural bank in Colombia. In our main treatment, we include a sentence to remind the customer of the public nature of the lender. We find strong and positive effects on repayment performance: farmers in this treatment have probabilities of ever being overdue and of entering into a period of 30 days past due that are respectively 10\% and 22\% lower than those of farmers treated with the traditional script. We interpret this finding as evidence that farmers are more like to repay their loans because of the public nature of the bank. Results from heterogeneity exercises show that some measures of state presence increase the magnitude of the effect of the public treatment, which suggests that state deterrence is a potential mechanism behind our findings. Furthermore, results from treatments where sentiments of altruism and peer pressure are induced by the script suggest that these motives explain part of the effect that the public nature of the lender has on repayment.

In Chapter 3, together with Juan Camilo Cárdenas, Christian Jaramillo and Luis Roberto Martínez, I address a methodological concern common in laboratory experiments. The house-money effect, understood as a person's tendency to be more daring with easily-gotten money, is a behavioral pattern that poses questions about the external validity of experiments in economics. We ran an economic experiment with 122 students, who received an amount of money with which they made risky decisions involving losses and gains; a randomly selected treatment group received the money 21 days in advance and a control group got it the day of the experiment. With our preferred specification, we find a mean CRRA risk aversion coefficient of 0.34, with a standard deviation of 0.09. Furthermore, if subjects in the treatment group spent 35\% of the endowment (as they did, on average) their CRRA risk aversion coefficient is higher than that of the control group by approximately 0.3 standard deviations. We interpret this result as evidence of a small and indirect house money effect operating though the amount of the cash in advance that was actually spent.

We conclude in this chapter that the house money effect may play a small role in decisions under uncertainty, especially when involving losses.