As a first-time job market candidate, the annual ASSA meetings every January are stressful and busy and kind of terrible, but as I’ve gone more and more, I’ve realized they’re kind of awesome. My two favorite events are the CSWEP mentoring breakfast and the CU reception, but everywhere you go, you’re running into people you want to have a conversation with, people you haven’t seen in a year or more, people who want to ask you something or share something exciting. I spent most of the weekend hearing about cool papers, having great conversations about economics, and seeing people I care about. I’m a big fan, turns out.
Even if it’s 0 degrees F and we’re all tromping around in the snow that the city won’t clear.
But I digress. One of the other events I was excited for this time around was the T. Schulz memorial lecture put on by the Agricultural and Applied Economics Association. I like ag economists.
The lecture was given by Michael Kremer of Harvard. It wasn’t a traditional lecture in the sense there wasn’t much talk of big ideas or themes. He really just presented a new paper, which was a bit disappointing, but, taken at face value, ultimately interesting.
The paper was trying to ascertain the extent to which asset-collateralized debt would be successful in an experimental setting in East Africa (yes, likely a community that has seen plenty of these interventions). Most of the debt we take on in the US is asset collateralized, if you don’t pay your car loan, they take your car, for instance, but it’s not like that in many other parts of the world. Collateral for loans, especially small loans, often comes in the form of guarantees from family or neighbors, or some cash reserve itself, or sometimes none at all. So, asking whether individuals saw these loan as different is an interesting question if someone is trying to institute them.
Perhaps the most important result is that people were paying back their loans, and not only paying them back, but paying them back early, which Kremer attributed to debt aversion.
As Kremer started in on his preliminary results, the first things I heard were not his interpretation, but rather whispers from all sides around me.
“Why should we think debt aversion is driving this behavior?” There seemed to be a consensus, at least in my part of the audience, that individuals were paying back their debts not because they disliked having debt, per se, but that they thought it made them look bad in the eyes of their neighbors. Some of the first questions following the lecture pertained to the interpretation of the observations.
Two ideas immediately came to my mind during this exchange. The first has to do with quantum physics and how when we observe something, we change it. The second is that many of the whispers around me could be re-interpreted as a discussion of social norms. In the peer effects interpretation, borrowers could see their peers repaying and thus be more likely to repay. And in the social norms sense, borrowers could perceive that having debt is not seen well by the community and thus be more likely to repay. It seems that much of the debate could have been settled by a survey question or two regarding attitudes about debt, social norms around debt, and the perception of debt aversion on a community level. “What percentage of people in this community pay their debts on time?” or “How are people who don’t pay their debts treated in this community?” Or something like that.
It strikes me that the language economists and other social scientists use to explain similar phenomena are often very different. Also, it seems that Kremer could have fairly quickly disabused his critics of their notions had he conducted at least a little surveying on debt aversion and social norms.