Community size is often found to be negatively correlated with prosocial behaviors such as formal... more Community size is often found to be negatively correlated with prosocial behaviors such as formal volunteering, working on public projects and informal help to friends and strangers (Putnam 2000, p. 119, 206). This may be because people who reside in large communities simply spend less time socializing with each other. As a result, people living in large cities have on average fewer friends, and hence their social networks support less cooperation. 1 A complementary channel, which has received less attention in the literature, is that community size may affect outcomes by changing other aspects of the network structure. Specifically, even holding fixed the number of friends, we expect social networks in small communities to exhibit greater network closure, i.e., be more interconnected. The intuition is straightforward: in small communities, the pool of potential friends is limited, which increases the extent to which the network neighborhoods of two friends are likely to overlap. suggested that variation in network closure can directly affect outcomes. In particular, he argued that networks with higher closure generate high trust between friends, which facilitates cooperation and thus improves welfare. The logic is that networks with high closure allow for greater social sanctions between individuals through common friends, thus increasing incentives for cooperation. In this paper, we empirically evaluate the effect of community size on network closure in one specific social environment: schools. We make use of the National Longitudinal Study of Adolescent Health (AddHealth) which has detailed social network information for about 86,000 students in 142 US middle and high schools. Our main finding is a strong negative
Information asymmetries--which occur when one party to a transaction has more or better informati... more Information asymmetries--which occur when one party to a transaction has more or better information than the other party--such as moral hazard or adverse selection, can cause inefficiency, overinvestment, or poverty traps. Unfortunately, they are difficult to identify in practice. This working paper by Dean Karlan, CGD non-resident fellow, and his co-author provides a microfoundation for studying the real effects of
Models of shrouding predict that firms lack incentives to compete on add-on prices. Working with ... more Models of shrouding predict that firms lack incentives to compete on add-on prices. Working with a large Turkish bank to test SMS direct marketing promotions to 108,000 existing checking account holders, we find that messages promoting a large discount on the overdraft interest rate reduce overdraft usage. In contrast, messages that mention overdraft availability without mentioning price increase usage. Neither change persists long after messages stop, suggesting that induced overdrafting is not habit-forming. Our results are consistent with a model of limited memory and attention.
Numerous laboratory studies find that minor nuances of presentation and description change behavi... more Numerous laboratory studies find that minor nuances of presentation and description change behavior in ways that are inconsistent with standard economic models. How much do these context effect matter in natural settings, when consumers make large, real decisions and have the opportunity to learn from experience? We report on a field experiment designed to address this question. A South African lender sent letters offering incumbent clients large, short-term loans at randomly chosen interest rates. The letters also contained independently randomized psychological "features" that were motivated by specific types of frames and cues shown to be powerful in the lab, but which, from a normative perspective, ought to have no impact. Consistent with standard economics, the interest rate significantly affected loan take-up. Inconsistent with standard economics, some of the psychological features also significantly affected take-up. The average effect of a psychological manipulation was equivalent to a one half percentage point change in the monthly interest rate. Interestingly, the psychological features appear to have greater impact in the context of less advantageous offers and persist across different income and education levels. In short, even in a market setting with large stakes and experienced customers, subtle psychological features appear to be powerful drivers of behavior. The findings pose a challenge for the social sciences: they suggest that psychological nuance matters but may be inherently difficult to predict given the impact of context. Successful incorporation of psychological features into field studies is likely to prove a vital, but nontrivial, addition to the formation of more general theories on when, why, and how frames and cues influence important decisions.
Retrospective voting models assume that offering more information to voters about their incumbent... more Retrospective voting models assume that offering more information to voters about their incumbents' performance strengthens electoral accountability. However, it is unclear whether incumbent corruption information translates into higher political participation and increased support for challengers. We provide experimental evidence that such information not only decreases incumbent party support in local elections in Mexico, but also decreases voter turnout and support for the challenger party, as well as erodes partisan attachments. While information clearly is necessary to improve accountability, corruption information is not sufficient because voters may respond to it by withdrawing from the political process. We conclude with a discussion of the implications of our findings for studies of voting behavior.
Uploads
Papers by Dean Karlan