Social and Financial Incentives for Overcoming a Collective Action Problem

• Main Authors: Bakhtiar, M. Mehrab, Guiteras, Raymond P, Levinsohn, James
• Format: Paper
• Language: English
• Published: 01.07.2022
• Edition: 1901
• Subjects: Consumer/Household Economics
• DOI: 10.22004/ag.econ.340054

Addressing public health externalities often requires community-level collective action. Due to social norms, each person’s sanitation investment decisions may depend on the decisions of neighbors. We report on a cluster randomized controlled trial conducted with 19,000 households in rural Bangladesh where we grouped neighboring households and introduced (either financial or social recognition) rewards with a joint liability component for the group, or asked each group member to make a private or public pledge to maintain a hygienic latrine. The group financial reward has the strongest impact in the short term (3 months), inducing a 7.5-12.5 percentage point increase in hygienic latrine ownership, but this effect dissipates in the medium term (15 months). In contrast, the public commitment induced a 4.2-6.3 percentage point increase in hygienic latrine ownership in the short term, but this effect persists in the medium term. Non-financial social recognition or a private pledge has no detectable effect on sanitation investments.