Michèle Tertilt

As early as the 18th century, Adam Smith, the father of modern economics, devoted himself to the study of family. Even so, family economics as a field has long been neglected. Michèle Tertilt is one of the most renowned economists to change that. Her work tackles the various decisions that are made within the family, from the division of labor to the number of children. As if one research area wasn’t enough, Tertilt also looks at credit markets, bankruptcy systems and, most recently, HIV policies and the financial decision making of couples.

Michèle Tertilt

At a glance

Title: Professor of Economics at University of Mannheim

Nationality: German

Field: Macroeconomics, Family Economics

A modern take: Didn’t take parental leave when her daughter was born, but her husband did

Sporty at heart: Enjoys kitesurfing in her spare time

Early success: Won the award for best dissertation at the University of Minnesota

A rise in consumer bankruptcies

Tertilt’s most influential research to date has been on consumer credit and bankruptcies. She explains how a rise in bankruptcies that began in the 1980s was influenced by what she calls the “democratization of credit”.

“New borrowers were getting access to credit, that was very important,” says Tertilt. “It was related to technological innovation. Credit scoring made it cheaper for banks to target loans better. If I can assess very specifically a person’s risk, I can charge in different interest rates. Prior to credit scoring, I had no idea about the propensity to default.”

Within 20 years, the number of US Americans with a credit card rose from 40 to 70 percent . At the same time, the dispersion of interest rates increased substantially. “If new types of people, riskier people borrow, then they will also default at higher rates,” is how Tertilt explains the main driver behind a huge increase in both debt and consumer bankruptcies.

The benefit of a fresh start

The ability to default is regulated by the specific consumer bankruptcy system in a country. In one of their papers, Tertilt and her research colleagues analyzed what they call the “fresh start” system.

“The fresh start system in the United States means if you have a lot of debt, you can declare bankruptcy and you can start afresh tomorrow,” she says. “That’s not the case in many other countries, where it’s very difficult to discharge debt.”

Tertilt describes her initial skepticism of the system, and what changed while working on the topic. “There’s a clear tradeoff,” she says. “An easy bankruptcy system acts as a partial insurance. If something bad happens in your life and you can’t cope anymore, bankruptcy is a way out. If you have not much of a welfare state like in the United States, having this partial insurance is actually quite useful. But that’s not the end of the story.”

Tertilt says more debt discharged leads to higher interest rates. “That makes borrowing over time harder. It will be harder to smooth your consumption, meaning to borrow when young and repay when old.”

Do people need safeguarding through governments?

In this context, Tertilt comments on the possible exploitation of misinformed people and financial literacy. “By and large, it’s been shown that people are informed in financial matters, but it’s been shown that women on average pay higher interest rates, older people pay higher interest rates.”

She mentions the US Consumer Financial Protection Bureau that started in 2011. “What can they do? One thing was forcing banks to report interest rates in a comparable way, because that’s often a mystery to consumers. A lot of the interest is hidden in form of a fee or an upfront payment and then it’s impossible to compare. To basically force certain reporting standards, that’s very useful.”

Will money in the hands of women lead to more economic growth?

Though her most cited work is on consumer bankruptcy, Tertilt is also well-known for her work on family economics, women’s rights and economic development.

One of the questions Tertilt asked was whether giving money to women is a good development policy. She explains that money in the hands of women increases expenditures on children because women, due to the gender pay gap, still spend more time – and money – on children. Economically speaking, this means they invest more in human capital, a key determinant of how well an economy will perform.

Tertilt explains how the difference in spending behavior has served as an argument for the World Bank, the United Nations and other organizations to introduce programs offering transfers exclusively to women to promote economic development. But is this good policy to get countries out of poverty? Tertilt and her co-researcher challenged this assumption and found out no, not necessarily.

If human capital is very scarce, giving money to women is a good thing.

“If men are in charge of investment goods, savings for the future, things that are useful for production, then it depends where the bottleneck is,” explains Tertilt. “If human capital is very scarce, then giving money to women is a good thing.” However, if the bottleneck in the economy is physical capital, giving money to men can be more useful. In her research, Tertilt used data from Mexico to prove that transfers to women increase expenditures on children but at the same time lead to a decline in the savings rate.

Still, Tertilt provides a concise model that illustrates how the best case for transfers targeted towards women can be made for countries at an intermediate stage of development, when human capital is a key driver of economic growth.

Women’s rights in polygynous societies

One of Tertilt’s research fields, and the topic of her dissertation, was the link between poverty and polygyny. She explains how polygyny – a man having more than one wife – remains a common practice in Sub-Saharan African countries, in spite of the fact it’s often legally forbidden. Tertilt points out how selling daughters and buying wives becomes an “investment strategy” in those countries, while investments in physical assets are neglected.

Attempts to enforce monogamy in sub-Saharan Africa haven’t been very effective. That’s why Tertilt believes the way forward is through female empowerment, to enable women to make their own decisions. “If daughters are empowered, the whole mechanism would break down,” explains Tertilt. “Rather than investing in women, men would look for more productive opportunities to invest. The incentive to invest in physical assets would be a lot higher.”

Though enforcing monogamy would have the largest effect, Tertilt says that more rights for women also leads to decreased fertility, as well as an increase in savings and GDP per capita. Her work establishes a strong correlation between women’s rights and the level of development in a country.

Where do we stand in the fight against HIV?

A recent topic of interest for Tertilt is the relationship between sexual behavior and HIV.

HIV is a critical health problem, with almost two million new infections each year . According to the World Health Organization (WHO), there are 38 million people living with HIV worldwide. The majority – around 26 million people – live in Africa, which is also the region that accounts for most of the global total of new infections. The WHO lists a number of policy interventions, among them male circumcision, information campaigns, and antiretroviral therapy (ART).

Tertilt and her co-researchers wanted to learn more about the effectiveness of those interventions. They looked at Malawi, a country with a rich data set available. They found that after a peak in HIV rates in 1999, the prevalence of HIV fell from 15 to 9 percent.

“The question is what happened,” says Tertilt. “One thing that has been touted by the Malawian government is the introduction of ART. We find in our simulation that that was an unlikely driver. The timing is just wrong.”

Her research revealed that with the beginning of the new century, information campaigns spread, which led people to change their behavior and ultimately lowered the HIV rate.

The economist’s advantage in studying HIV

While policy interventions are meant to do good, Tertilt found that some actually had a negative effect.

“If people understand that they are less likely to catch the disease, what will they do?” she asks. “They’ll engage in more risky behavior. They may have more casual sex.”

Unlike other HIV studies, Tertilt’s model didn’t assume that people’s behavior will be indifferent to policy changes. “You have to take into account changes in behavior,” she says. “Here’s where economics comes in.”

With knowledge about HIV at high levels in Malawi and other Sub-Saharan African countries today, Tertilt finds that ART will be a key driver to further reduce HIV. “The introduction of antiretroviral drugs is at pretty high levels now,” she says. “Fifty percent of the infected are treated. What we can show is that as soon as enough people are treated, ART becomes a very useful policy to reduce HIV.”

There are always more questions to ask

As a young woman, Tertilt aspired to improve the world. Her altruism combined with her math talent made studying economics a natural fit. An assistant professor at Stanford by the age of 31, she’s been back in her home country of Germany since 2010, teaching at the acclaimed economics department at the University of Mannheim.

In 2019, Tertilt was awarded the Gottfried Wilhelm Leibniz Prize by the German Science Foundation. With Germany’s most prestigious research prize comes 2.5 million EUR to fund future research. What will she spend the money on?

“It gives me lots of opportunities to pursue new ideas,” says Tertilt. “I’ve been thinking about bringing together my two lines of research. Trying to understand the financial decision making of couples is something I really want to pursue.”

There’s no doubt that the curiosity and energy that’s clearly visible when talking to Tertilt will guide her to many more exciting questions.