Do Savings Improve Consumption Smoothing in the Presence of Limited Commitment and Hidden Income? Evidence from a Lab Experiment in the Field

This project builds on the intriguing conclusions that Chandrasekhar, Kinnan and Larreguy discovered in a 2009 study of the impact of new savings opportunities on associations among savings partners who have limited social ties. In many parts of the developing world, there is often little or no access to banks. As a result, various types of informal savings relationships help communities to pool and share financial resources as well as to insure themselves against loss or income variability.

In their previous study of these limited commitment relationships in India, the researchers discovered that access to new savings opportunities crowded out financial transfers between individuals. But, it improved overall individual welfare. In the original study, the participants had knowledge of their partners’ income and savings and could make decisions accordingly. As the researchers point out, in the real world, participants often do not know the income or savings of their insurance partners.

This CFSP project examines how hidden savings and hidden income affect these insurance relationships among rural villagers in India.  Chandrasekhar, Kinnan and Larreguy are exploring the interaction between informal insurance and self-insurance through savings in a field lab experiment where rural villagers in India participate in a series of limited commitment games. In these games, participants can share income with each other as well as save.


See photos from Chandrasekhar, Kinnan and Larreguy's research.

Research Questions: 
  • What is the effect of hidden income on informal insurance and welfare?
  • When income is hidden, how does access to hidden savings affect informal insurance and welfare?
  • Do social ties between individuals create trust when income and savings are hidden, and when individuals cannot formally commit?
  • Do risk-sharing groups that are self-formed do better at maintaining trust and insurance than externally-formed groups?

  • Can access to publicly observable savings improve welfare by improving prospects for interpersonal insurance?
Data Notes: 

Survey Time Frame and Rounds: June-August 2010


  • Risk aversion, education and financial literacy
  • Game data (the data collected during the experiment)

Survey size: 1280 (40 villages, 32 individuals per village)

Sample: individuals in villages in rural Karnataka, India (individuals must have lived in the village since 2007 and be between the ages of 15 and 45)

Intervention: Individuals play 4 different games as part of the data-collection process, and are paid for one randomly-selected choice that they make, as well as being paid for their participation.

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