How Important are Indivisible Investments for Savings and Development? Experimental Evidence from Uganda

Feb 16, 2018, 10:30am - 12:00pm

Joe Kaboski, the David F. and Erin M. Seng Foundation Professor of Economics in the Department of Economics at the University of Notre Dame and a Fellow of the Kellogg Institute, will present “How Important are Indivisible Investments for Savings and Development? Experimental Evidence from Uganda” on Friday, February 16th from 10:30am-12:00pm in Room 250A, Agricultural Administration (2120 Fyffe Road, Columbus, OH 43210).

Abstract: In theory, high yield, indivisible investments investment indivisibilities and the nonconvexities in production can play crucial roles in development, especially when financial frictions are present. When facing such investments, agents can be more risk-loving and impatient. This paper uses a cash grant experiment in rural and semi-urban Uganda to evaluate how quantitatively important these investment indivisibilities may be. Specifically, we offer households a choice between a safer, low payoff and a riskier, large payoff lotteries. We also offer them a chance between an safer payoff or riskier, larger payoff. We also offer them an opportunity to delay receipt, earning interest. Consistent with the presence of high yield, indivisible investments, we find significant rates of risk-loving demand demand and impatient demand, and this demand is linked to savings and returns. Higher payoffs are associated with increased savings, especially if the payoffs are sufficient to enable indivisible investments.

This event is open to the public. No RSVP is necessary.Joe Kaboski