Apr 11, 2008

Cash Is More Addictive than Nicotine

by Tim Ogden

The World Health Organization recently predicted that one billion people, 80 percent of them in developing countries, will die from smoking-related causes by 2100. To avert this global health disaster, cost-effective public health programs to reduce smoking will be critical. Economists from Innovations for Poverty Action and the World Bank have found that money might be the most powerful tool to help smokers quit. Cash, it seems, is even more addictive than nicotine. The possible loss of a cash deposit was twice as effective as the nicotine patch or gums in helping people quit smoking.

Cash incentives have been used to alter behavior by everyone from parents to marketers to governments. Most instances of cash incentives involve payments to reward good behavior. There is an alternative way of using cash, however: A commitment contract. A commitment contract is essentially a price placed on one’s own behavior using one’s own money. In the case of smoking a person might sign a commitment contract to quit smoking within six months, guaranteeing their commitment with cash. If they succeed in quitting they get their money back. If they fail, they forfeit the money. Anti-smoking program budgets could benefit greatly from a commitment contract approach, since the cash incentives come from the smoker’s pocket. But do commitment contracts work?

The study, designed by Dean Karlan and Jonathan Zinman from Innovations for Poverty Action and Xavier Gine from the World Bank in conjunction with Green Bank, asked that same question. To see if commitment contracts could help people quit smoking, staff from Green Bank approached smokers in public places and asked them to complete a survey about their smoking habits. Through a random selection process the survey participants were also placed into one of three groups: 1) A control group that received no additional help to quit smoking; 2) A group that were offered a free set of wallet-sized cards with images depicting the physical damage cause by smoking (e.g. diseased lungs, mouth cancer, etc.) similar to those that the Canadian and other governments require cigarette manufacturers to put on their packages; or 3) A group that was offered the opportunity to enter into a commitment contract to quit smoking.

Smokers who accepted the commitment contract were required to put 50 pesos into an interest-free savings account with Green Bank (50 pesos is approximately four times average weekly spending on cigarettes). Contract participants were also encouraged to deposit more money into their accounts each week. At the end of six months, if the contract participants passed a urine test proving they had quit smoking they would get their money back. If they failed the test (or failed to take the test) the money would be given to charity.

All survey participants who could be found were tested six months later. About 63 percent of the members of each of the three groups were found. Twelve percent of the control group (those who took the survey and received the pamphlet but nothing else) had quit smoking. Of those who were offered the opportunity to sign a commitment contract, regardless of whether they accepted or not, 16 percent had quit. Of those who signed a commitment contract nearly 34 percent had quit. To put the success of the program in context, commitment contract participants in this study were twice as likely to successfully quit as smokers from other studies who used nicotine gum or patches. Surprisingly, the visual “cue” cards were just as effective as using nicotine patches or gum in helping people quit, at must lower cost.

The study suggests that commitment contracts could be a highly cost-effective public health approach to reduce smoking. It’s also worth noting that the commitment contract itself was more popular than expected. Originally the study leaders expected relatively few people to sign up given that the commitment contract had no direct monetary benefit and plenty of risk for the smokers. A prior study had shown that just six percent of people offered nicotine patches would accept. In practice, however, the commitment contract was accepted by 11 percent of those to whom it was offered. While the data don’t explain why such a “bad” savings product would be so popular (in fact, two people who were not offered the contracts found out about them and approached Green Bank on their own to sign up), one credible possibility is significant unmet demand for convenient microsavings products. The single largest factor influencing participation seemed to be the ease of making deposits—when Green Bank offered to collect the deposits rather requiring the participant to a bank branch to make the deposit, participation was significantly higher.