The Lesser of Two Evils: Social Pressure and Impatience in Consumption Decisions in Poor Agrarian Economies

Paper Abstract: Individuals in poor agrarian economies sometimes exhibit high marginal propensities to consume that are suggestive of high discount rates. To test the extent to which informal insurance networks or the social norms that support them affect the timing of consumption and level of savings, Goldberg employs a field experiment in central Malawi to distinguish between the use of windfall lottery winnings when receipt of the money is known to others in the community versus when it is private information. Goldberg finds that public winners spend 35 percent more than private winners in the period immediately following the lotteries. This spending pattern is consistent with a seven percent tax on surplus income in a simple model where a fraction of money that is not spent immediately must be shared with others in the social network.

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