For my readings this month, I will try and read a survey on the work of this year’s Nobel prize winners in economics. I will mostly follow this survey by the Nobel Prize committee.
Edit: Turns out that I read their basic arguments in this slatestarcodex post. The author of this post mainly wants to refute some of the Banerjee’s and Duflo’s arguments, and at the time of reading I found them to be convincing.
Edit Edit: I ended up reading the book “Poor Economics” by Banerjee and Duflo, which outlines their Nobel prize winning work. I also write a review of the book on Goodreads, which I am copying here:
This is a book of hope.
“..if we listen to poor people themselves and force ourselves to understand the logic of their choices; if we accept the possibility of error and subject every idea…to empirical testing…(then we’ll) better understand why people live the way they do.”
This is the closest that economics can get to science. The authors take apparently common sensical claims, and perform randomized trials to evaluate whether those claims are true. And the results are often surprising.
What is the best way to ensure that more parents vaccinate their children? You might think that spreading information about the merits of vaccination would make parents line up in front of vaccination centers. This hypothesis was tested, and lots of resources were invested in spreading information about vaccination. Moreover, randomized surveys concluded that most parents in villages are indeed well informed about the advantages of vaccinating their children. However, less than a quarter of the parents queued up in front of vaccination centers. This contradicts the common sensical view that parents who know that vaccination is good would inevitably get their kids vaccinated.
The authors suggest that the reason why so few parents came was that most of these people would have to travel long distances, and stand for hours in the sun to vaccinate their children. Based on these hurdles, they made a split second decision to procrastinate, and possibly wait for the next time that these vaccination camps would be set up. What saved the day was providing a small gift for parents who came to these camps- maybe some utensils, or a couple of kgs of rice. This small bribe helped parents overcome their procrastination, and come get their kids vaccinated.
It might seem wrong to bribe people to do what is good for themselves and their kids. However, the authors suggest that in a complex world in which we have multiple issues demanding our attention and effort, we tend to procrastinate on doing things that are undeniably good for us, if they are slightly hard to do. Providing an incentive to do these things, or making these things slightly easier to do, can often lead to staggering results.
Another example is the following: chlorinated water is much safer to drink, and can prevent life threatening diseases like dysentery. It is cheaply available in India, and well within the means of most families to buy. However, very few families in Indian villages buy chlorine, despite the awareness that doing so would drastically reduce their chances of contracting a life threatening disease. This could also be attributed to the above hypothesis- procrastination. What changed things? Some villages installed chlorine dispensers right next to the village wells. Hence, availing of chlorine became easier (although not necessarily cheaper), which led to a drastic reduction in water-borne diseases in those villages.
Perhaps one way of summarizing this issue would be the following: people living in the developed world, or in large cities in the developing world, don’t have as many issues that demand their attention. The water is already chlorinated. Good schools and hospitals are available nearby. In such an environment, people can devote their full attention to issues that would further improve their lives. However, in villages, people have to take care of a lot more things. This causes them to procrastinate on all of them, causing their condition to only worsen over time.
One of the most fascinating sections of the book was on teenage pregnancy- randomized controlled trials suggested that teenage girls are well aware of the fact that getting pregnant at a young age would only make life more difficult for them. However, the absence of schools or colleges in the area only left the option of finding a husband and getting married open. This process would sometimes lead to unplanned pregnancies (this was more in the Mexican context than the Indian). Although it was thought that sex education would make the situation better, it only worsened the situation. What saved the day was providing free uniforms and books to girls, and hence ensuring that they could remain in school longer. This caused them to not actively pursue marriage, and led to a drastic drop in teenage pregnancy.
A large number of countries try to promote birth control to slow the rate of population growth. It was thought that the easy availability of contraception would solve the problem. This did not help at all. What was not considered was that women are almost never in control of the timing and number of pregnancies- the male patriarchs would decide that. In randomized control trials in Bangladesh, women volunteers would visit women in the afternoon, when their husbands would be away at work, and inform them about contraception. This lowered the birth rate of that district by 60%!
Moreover, what was most surprising to me was that the factor that led to a sharpest drop in birth rate in Brazil was the popularization of telenovelas. In these telenovelas, the female characters would only have one or two children. This normalized the prospect of having less children for women, and led to a substantial drop in birth rates in just a decade!
Basically, many of our “obvious” and “common sense” ideas are wrong. We do not know what will make the poor less poor. Let us deploy our most successful weapon- Science. We can conduct experiments, and determine the factors that actually make a difference. And then make these things policy- at the grassroots level or the national. The authors won a well deserved Nobel prize for introducing “experiments” of this kind in economics. These experiments are easy to perform, and can very tangibly make the poor better off.
That is why this is a book of hope.