Intertemporal Choice and Income Regularity: Non-Fungibility in the Timing of Income among Kenyan Farmers

Abstract

The optimal design of informal contracts in agricultural value chains depends on when farmers prefer to be paid for their output. While the evidence from time preference experiments suggests a preference for early payments, field studies often indicate that farmers will defer regular payments if given the opportunity. In this study, we explicitly test whether farmers are more patient regarding regular, earned income than regarding experimental windfall payments. We asked farmers in a dairy cooperative in Kenya to allocate both their milk income and a onetime gift between an early and a deferred payment date. We find that a large majority of participants deferred their milk payments, while rarely choosing to defer the gift. Participants' survey responses suggest that we observe this difference because of mental accounting: participants earmarked their regular milk payments, but not the gift, to save for bulky expenditures. We conclude that deferred payments can provide value to producers by functioning as a savings device, even when decisions over windfall income suggest a preference for early payments.

Pay Me Later: Savings Constraints and the Demand for Deferred Payments

“…Overall, this paper contributes to recent work on payment deferral in developing countries (Casaburi and Macchiavello, 2019;Brune and Kerwin, 2019;Kramer and Kunst, 2020). We build on prior studies in four main ways.…”

“…A key prediction of standard economic models is that individuals should prefer to be paid early. However, an emerging literature documents notable demand for deferred payments for goods and services in developing countries (Casaburi and Macchiavello, 2019;Brune and Kerwin, 2019;Kramer and Kunst, 2020). Similarly, millions in developed countries choose to defer income by opting to overwithhold on tax payments that are later returned as refunds (Thaler, 1994).…”

How are SNAP Benefits Spent? Evidence from a Retail Panel

“…6 The second strand, reviewed in Fox, Hamilton, and Lin (2004), either compares participants to nonparticipants or relates a household's food spending to its benefit amount in the cross section or over time. 7 The third strand studies randomized evaluations of program extensions or additions. 8 The fourth strand exploits policy variation in program availability and generosity.…”

How Are SNAP Benefits Spent? Evidence from a Retail Panel

“…9 Closest to our study, Bruich (2014) uses retail scanner data with method-of-payment information to study the effect of a 2013 SNAP benefit reduction, estimating an MPCF out of SNAP benefits of 0.3 with confidence interval radius of 0.15. 10 We estimate an MPCF out of SNAP benefits of 0.5 to 0.6 with confidence interval radius as low as 0.015, and an MPCF out of cash income of no more than 0.1. This paper contributes new evidence of violations of fungibility in a large-stakes real-world decision with significant policy relevance.…”

“…Ratcliffe, McKernan, and Zhang (2011) and Yen et al (2008) estimate the effect of SNAP and food stamps, respectively, on food insecurity, using state-level policy variables as excluded instruments. 10 Bruich (2014) does not report an MPCF out of cash income. Andreyeva et al (2012) and Garasky et al (2016) use retail scanner data to describe the food purchases of SNAP recipients, but not to estimate the causal effect of SNAP on spending.…”