Changing Households’ Investment Behavior through Social Interactions with Local Leaders: Evidence from a randomized transfer program

Karen Macours and Vakis Renos

How important are social interactions in changing poor households’ investment decisions and what does this imply for the design of social policies? Karen Macours and Vakis Renos analyzed this question for a randomized cash transfer program in Nicaragua, where 56 villages were randomly selected to receive cash transfers conditional on sending children to school. Some random households received also additional cash to start a nonagricultural activity benefits. The program aimed to increase human capital and productive investments of poor rural households; it targeted the vast majority of households in each village and explicitly encouraged group formation.
One third of the households, including some local leaders, randomly received the larger benefits. Leaders typically were more successful in developing these new activities. Karen Macours and Vakis Renos hypothesize that witnessing the success of local leaders can motivate poor households’ to invest and therefore measure whether proximity to leaders that randomly received the largest package led to additional impacts. Baseline and follow-up data were collected on about 4000 households in both treatment and control villages. Local leaders who received the largest package indeed increased their own investments. More importantly: social interactions with such leaders amplified program impacts on education and nutritional outcomes of other beneficiaries, increased their income from nonagricultural activities, and changed these households’ attitudes towards the future. Witnessing local success stories of upward mobility hence can be an important way to shift households’ aspirations and investment behavior. Building the possibility of such interactions into the design of social programs can facilitate such aspirational shifts and increase sustainability of program impacts.
(1) Volunteers to promote the program +teachers + health workers
(2) Bakery, retail trade…

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Original title of the article : “Changing Households’ Investment Behavior through Social Interactions with Local Leaders: Evidence from a randomized transfer program”
Published in : Economic Journal, 2014, 124 (May), 607–633
Available at : http://onlinelibrary.wiley.com/doi/10.1111/ecoj.12145/full
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