The Effect of Social Pressure on Expenditures in Malawi∗

I vary the observability of a windfall payment to 294 members of agricultural clubs in rural Malawi in order to study the effect of social pressure on timing of expenditures. While other studies have documented that social pressure affects the quantity of income and consumption, I focus on timing because spending money quickly may be a strategy for reducing obligatory transfers. Such a shift in timing is welfare reducing if it reduces consumption smoothing or the ability to search for better prices, or leads to greater spending on temptation goods. Respondents who receive money in the presence of their agricultural club spend 30 percent more in the week immediately following the payment than those who receive equivalent transfers in private settings. There is no overall change in the composition of spending, but some evidence that social pressure to share windfall income has a larger effect on poorer households. ∗An earlier draft of this paper was circulated under the title “The Lesser of Two Evils: The Roles of Social Pressure and Impatience in Consumption Decisions.” The research was supported by grants from the Rackham Graduate School at the University of Michigan. It was approved by the IRB committee at the University of Michigan. I thank Brian Jacob, Pamela Jakiela, David Lam, Jeff Smith, and Dean Yang for their helpful comments, and Santhosh Srinivasan and Lutamayo Mwamlima for their assistance with field work. All errors and omissions are my own. †University of Maryland, [email protected]