Research library Signals, screening and ordeals
A Small Hassle Did the Sorting.
In 400 Indonesian villages, households that had to travel and apply for a cash-transfer program turned out much poorer than households enrolled automatically. A little friction sorted. More didn't help.
Vivi Alatas, Abhijit Banerjee, Rema Hanna, Benjamin Olken, Ririn Purnamasari and Matthew Wai-Poi, 2016
What they were looking at
In 2011 Indonesia expanded PKH, its conditional cash-transfer program, which pays poor households $130 a year for six years. Programs like this always face the same problem: how do you get the money to the households that need it most, when you can’t easily see who they are?
The researchers ran a randomized experiment across 400 villages in Lampung, South Sumatra and Central Java, using the same asset test everywhere:
- In some villages, households had to travel to a site and apply, then take the test.
- In others, households were surveyed at home and enrolled automatically if they passed.
What they found
“requiring beneficiaries to apply for benefits results in substantially poorer beneficiaries than automatic enrollment using the same asset test” Alatas et al. (2016), abstract
Most of the difference came from who didn’t show up: better-off households expected to fail the test and didn’t bother to apply. The trip did the sorting before the test did.
“adding a small application cost to a transfer program can substantially improve targeting through self-selection” Same
They also tried making the trip harder. That didn’t help:
“Marginally increasing application costs on an experimental basis does not further improve targeting.” Same
Getting noticeably more sorting would take a far bigger ordeal, “e.g. tripling wait times to 9 hours or more,” by the working paper’s estimate.
What it means
Friction can sort. A small cost that the people who wouldn’t qualify won’t bother to pay does the screening for you. But the sorting comes from the first small step. Piling on more mostly adds cost, and it lands on everyone.
It isn’t free, either. When the US closed Social Security field offices, the number of people receiving disability benefits fell by 16%, and the drops were largest among moderately severe, low-education applicants. Targeting got worse. Friction can screen out the people you want.
Where it shows up in a revenue team
- One qualifying step filters well: a short call to book, one question that matters, an appraisal.
- A ten-field form isn’t ten times better than a two-field one. Past the first real ask, extra friction costs good prospects too.
- Measure who a step removes, not just how many. Every time you add or take away friction, check what happened to the mix, by tier.