Highlights
- Take-up of lumpy human capital investments can be increased by labeled microcredit.
- Sensitivity to loan labels plays an important role in household investment choices.
- Not all labeled loans convert into investments intended by the loan label.
- New labeled loans can lead to substitution away from other labeled loans
- A theoretical model and experiment in India demonstrate loan label sensitivity.
Abstract
Imperfect capital markets and commitment problems impede lumpy human capital investments. Labeled loans have been postulated as a potential solution to both constraints, but little is known about the role of the label in influencing investment choices in practice. We draw on a cluster randomized controlled trial in rural India to test predictions from a theoretical model, providing novel evidence that labeled microcredit is effective in influencing household borrowing and investment decisions and increasing take-up of a lumpy human capital investment, a toilet.
Authors
Britta Augsburg
Britta is an IFS Associate Director, Associate Staff at the Department of Economics at the UC and Researcher at NIHR Obesity Policy Research Unit.
Bet Caeyers
Bet is a Research Associate of the IFS who is an Adjunct Associate Professor at FAIR/Norwegian School of Economics (NHH).
Sara Giunti
Bansi Malde
Bansi is a Research Fellow of the IFS, a Senior Lecturer of Economics at the University of Kent and also a Fellow at the Global Labor Organisation.
Susanna Smets
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