Do Informal Transfers Induce Lower Efforts? Evidence from Lab-in-the-Field Experiments in Rural Mexico

How do informal transfers affect work incentives? The question matters in developing countries, where labor markets are intertwined with transfer networks. The tax-and-subsidy component of transfers would dilute work incentives, but their prosocial element could encourage people to work harder. Such crosscurrents are hard to disentangle because participation in informal networks is likely endogenous. We tackle this problem with a lab-in-the-field experiment that uses a real-effort task. Our main finding is that participants do not reduce their effort in the presence of transfers. This suggests that the impact of informal transfers may extend beyond just the sharing of risk.