sChoose one policy we have discussed during the class which you find most interesting and

effective in reducing poverty.

SEED(Save, Earn, Enjoy Deposits) Lecture 9, chapter 8 poor econ.

Ashraf, et. al ‘‘Tying Odysseus to the Mast: Evidence from a Commitment Savings Product
nin the Philippines’’ QJE 2006

https://www.povertyactionlab.org/evaluation/commitment-savings-products-
philippines#:~:text=Researchers%20designed%20and%20implemented%20a,control%20or
%20family%2Dcontrol%20issues.

We observe that the slow economic growth of the Philippines in comparison to its
neighbouring countries has contributed largely to low saving levels. In the 1960s, savings
contributed to over 20% of the country's GDP. Currently, it has dwindled down to around
12%, which is significantly below the level of savings for most east Asian countries. To
combat these insufficient saving levels, researchers along with the Green Bank of Caraga
conducted a randomised control experiment by formulating and implementing a commitment
savings product called a SEED (Save, Earn, Enjoy Deposits) account. The aim of this
experiment is to determine whether the commitment problem is a significant factor in
explaining the poor's low savings rate, and whether offering a commitment savings product
to those with a hyperbolic preference (more impatient over future trade-offs than current
trade-offs) can help them increase their savings.

The SEED account requires individuals to commit to restricting access to their savings,
potentially assisting with self-control or family-control conflicts. Each person sets a goal date
or amount and is not permitted to withdraw from the account until the goal is met. The bank
provides a locked box with a small opening for depositing money but does not allow clients
to open it on their own. Aside from providing a possible commitment savings device, this
account accrues no additional benefit to individuals: the interest rate paid on the SEED
account is the same as the interest rate paid on a regular savings account (4% per annum).

To determine whether an individual's time preference influences the take-up rate of the
commitment-saving product, the authors conduct a separate survey on client demographics
and time preference. The survey's primary variable is time preference. They assess time
preference by asking people to choose between immediate but small rewards and larger but
delayed rewards. A person is said to have hyperbolic time preference if she is more
impatient in the short term than in the long term. This individual has a hyperbolic time
preference if he or she chooses the immediate reward in the short term but the delayed
reward in the long term. Approximately 28% of the participants were hyperbolic.

Result
Examining the use of savings products by individuals randomly assigned to the commitment-
treatment group. Table V shows the factors that influence take-up. We discovered that
people who are time inconsistent (impatient now, but patient for future trade-offs) are more
likely to use the SEED product. Table V, columns (1), (2), and (3), show the results for the
entire sample, women, and men, using a probit specification.
The time preference questions allow us to divide people into three groups: most impatient,
middle impatient, and least impatient. "Most Impatient" is the omitted indicator variable. We
can include indicator variables for impatience level over current and future trade-offs, as well
as the interaction term that captures preference reversal ("Hyperbolic"). For women,
hyperbolic preference strongly predicts use of the SEED product.

Results and policy lessons

Savings Product Take-up: 28% of those who were explicitly offered the SEED product
opened an account. After a year, roughly half of the clients had made additional deposits to
their accounts in addition to the initial opening deposit, and one-third had made regular
deposits. SEED appears to have assisted approximately 10% of the treatment group in
saving more money.

Household Decision Making Power: The SEED product increases the decision-making
power of women in the home, as well as the purchase of female-oriented durable goods.
The outcome was calculated as the average of responses across nine decision categories
and used as a decision-making indicator (expensive purchases, assistance given to family
members, recreational use, etc). According to the findings, being assigned to the treatment
group causes a 0.14 to 0.25 standard deviation increase in a decision-making index.

Limitations

Although this paper demonstrates how introducing a commitment savings product can
change the savings behaviour of individuals with hyperbolic preferences, we must exercise
caution when extrapolating the results to other contexts. First, the paper discovered that the
effect is only significant for women, who have most of the financial responsibility in Filipino
households. The results also show that the SEED product leads women who reported
preferring present consumption over future consumption in the baseline survey to self-report
being a disciplined saver in the follow-up survey. Furthermore, we cannot rule out other
possibilities, such as spousal/family control as a mechanism for enrolling in a commitment
savings product. As Anderson and Baland (2002) discuss, women's bargaining power, as
measured by the percentage of household income she brings in, predicts the take-up rate of
a product.
References

1. Commitment savings products in the Philippines: The abdul latif jameel poverty
action lab. The Abdul Latif Jameel Poverty Action Lab (J-PAL). (n.d.). Retrieved April
6, 2022

https://www.povertyactionlab.org/evaluation/commitment-savings-products-
philippines#:~:text=Researchers%20designed%20and%20implemented%20a,control
%20or%20family%2Dcontrol%20issues.

Amend:

- Household decision making power- either link to increased savings or bring out direct
link between that and reduce poverty OR, remove altogether
- Link between how increased savings helps reduce poverty and hence how SEED
helps in doing so
- Bring out link between how people with low income have increased savings
- Talk less ab time variable
- Reduce word count