Perceptions and Participation: Research Design with Low Program Enrollment and Heterogeneous Impacts in Development

• Development Workshop

Date and Location

Monday, April 23, 2012, 4:10 PM - 5:30 PM

Abstract

Recent emphasis in applied development economics has been on evaluating complex financial market interventions, such as microfinance programs, savings mechanisms, and innovative insurance products. However, these programs are often plagued by low participation, making the task of impact evaluation more difficult due to imprecision of estimates. Furthermore, the program impacts identified by different designs will vary when individuals are heterogeneous in ways that affect program participation and outcomes. This paper is a methodological exploration of research design in the presence of low participation and individual heterogeneity. To put this issue in context, I use the example of index insurance, an innovative financial tool characterized by low participation rates. I focus on the choice between a research design based on randomized eligibility and a randomized encouragement design. Randomized encouragement designs offer a stronger incentive for program participation to a randomly chosen subpopulation, and then use the incentive as an instrumental variable in econometric impact evaluation. In general, the effect estimated by a randomized encouragement design will be biased relative to the true impact of a program on participants. However, bias may be offset by greater precision, resulting in an estimator with a relatively low Mean Squared Error. In addition, greater unobserved heterogeneity among the study population will not necessarily increase this bias. These conclusions depend on the nature of the program and outcomes being studies, and ought to be considered carefully by researchers weighing alternative research designs.