Abstract:

Delays in regular income payments are common in low-income settings, yet their economic effects are poorly understood and theoretically ambiguous. The Permanent Income Hypothesis (PIH) predicts full consumption smoothing, while models with credit constraints or present bias predict sharp declines in consumption. We test these opposite predictions using high-frequency panel data and quasi-random variation in interview timing in one of the world’s largest refugee camps, in Kenya. We find that while households smooth consumption over regular aid cycles, delays lead to sharp reductions in caloric intake, food security, and food stocks, with downstream effects on subjective well-being, intertemporal preferences, and cognitive function. Access to informal credit mitigates these effects but at a 17% cost premium. Local food prices also respond to aid timing, with spillovers across camps. These findings are inconsistent with the PIH and present-bias models, but consistent with constrained intertemporal choice under limited access to savings and credit.

Full Article: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5190878