ABSTRACT

This paper estimates the hidden cost of informal redistribution in a context where people heavily rely on their social networks and have limited access to financial markets. It is based on a lab-in-the-field experiment conducted in Senegal which has the unique feature of combining a small scale randomized controlled trial (RCT) and a lab experiment. The lab component allows us to estimate the cost of this informal redistribution, through the elicitation of the willingness-to-pay to hide income and to identify the relevant population: two thirds of the experiment participants are willing to forgo up to 14% of their gains to keep them private. Based on the RCT component, we find that giving the opportunity to hide allows people to decrease by 27% the share of the gains they devote to transfers to kin out of the lab and to reallocate this extra money to health and personal expenses. This is the first paper to both identify the cost of this informal redistribution and to relate it to real-life resource allocation decisions, in a controlled setting.