Preference for Hidden Income and Redistribution to Kin and Neighbors: A Lab-in-the-field Experiment in Senegal
Résumé
Informal redistribution play a preponderant role in individual risk management in developing economies. However, strategies to reduce the pressure to redistribute are rather widespread and often costly, while under-explored in the economic literature. In this paper, we identify the potentially distortionary effects of informal redistribution on individual resource allocation choices, through exogenous variations on one hand of the share of unobservable income and on the other hand, of the pool of observers. For this, we conducted an original experiment combining both a lab-in-the-field and a randomized controlled trial in poor urban communities in Senegal on a randomly selected sample. A first contribution of the paper is to elicit in the lab the willingness-to-pay to hide one’s lab lottery gains from kin and neighbors.
Second, we estimate the impact of the non-observability of this windfall income on resource allocation decisions of participants out of the lab. We find a high willingness-to-pay for hiding: 65% of subjects prefer to receive their gains in private rather than in public and among them, they are ready to forgo on average 14.3% of their unobserved income for the privacy option. Also, we find that the determinants of the willingness-to-pay to hide income while correlated with redistributive pressure differ across gender. Moreover, while lottery public winners are found to spend 22% of their windfall income on transfers to kin, lottery private winners showing preferences for hidden income transfer 24% less and reallocate this extra money in health and private expenditures.
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