Aspiration Adaptation in Resource-constrained Environments

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Abstract
We use a multi-country field experiment that combines random variation at the treatment level with exogenous variation in the length of exposure to treatment to test the effect of a slum housing intervention on the evolution of the housing aspirations of untreated co-resident neighbors. Initially after the intervention, we observe a large housing gap in favor of treated units. As a result, non-treated households' aspirations to upgrade their housing increased sharply relative to the treatment group, echoing an aspiration to “keep up with the treated Joneses”. The aspirational effect is mostly observed among dwellers residing in urban slums, with relatively high levels of income, and located close to treated neighbors. However, after 2 years of treatment exposure, the aspirational effect completely disappears and no effects are found on housing investment. Estimates based on a structural model of aspiration adaptation show that the decay rate is 38% per month, implying that housing aspirations return to baseline levels in just 28 months. Our evidence suggests that simply fostering housing aspirations may be insufficient to encourage housing investment in poor neighborhoods, and thus slum-upgrading policies designed to indirectly stimulate housing expansion may not be as effective as they promise to be.

Authors: Sebastian Galiani, Paul Gertler, and Raimundo Undurraga