Do prize-linked incentives promote positive financial behavior? Evidence from a debt reduction intervention

Abstract

We conduct the first field experiment examining whether prize-linked incentives can be effective in promoting debt reduction by randomizing access among 6,907 borrowers in a debt management plan. We find strong take-up of the program and that takers were timelier with repayment and paid off more debt. However, average treatment effect estimates for on-time payments, programmatic dropout, and debt levels (46.7 dollars, 95% CI = [−$132, $225], control mean = $11,558) are all precise zeros. Our results suggest that despite strong interest and positive correlations, prize-linked incentives may not modify debt repayment behavior and may simply attract individuals who are ex-ante likely to repay.