Innovation Blog

Innovating Economics: How to Do Research on Alleviating Poverty the RIGHT Way! Or

 How to Keep Poor Kids in School with only a Few Pennies.

By Shlomo Maital

MIT Professor Esther Duflo   

Many people have been inspired by Greg Mortenson’s book Three Cups of Tea, about how he stumbled into an Afghan village after failing to summit K2, leading him to launch a huge project that built many schools in Afghanistan.   The CBS program 60 Minutes attacked Mortenson, debunking many of his claims and claiming misuse of his funds, and he later responded.  

  In his New York Times Op-Ed column Nicholas Kristof, who covers the developing world, says the Mortenson affair raises a deeper issue – “how best to make an impact”.  Increasingly Generations Y (the generations that followed the baby-boom generation) want to change the world as their life mission. But how best to doit?  Do we know? 

    In my blog, I’ve been highly critical of my fellow economists for their narrow, greed-ridden detached-from-reality view of the world, shown in their mathematical equations that portray no recognizable human societies.  But there is an exception.  Today young economists are getting out into the field, applying the rigorous methods of scientific research (randomized sampling, control groups) to study how best to alleviate poverty.  The two leading proponents of this approach are MIT Professors Abhijit Banerjee  and Esther Duflo.  Their new book *   documents how their Poverty Action Lab uses randomized trials in countries from  from Chile to India, Kenya to Indonesia, to show how to use resources efficiently to change the lives of the poor.  A second new book, by Dean Karlan (a behavioral economist) and Jacob Appel (an aid workers),  More Than Good Intentions: How a New Economics Is Helping to Solve Global Poverty, tackles the same topic.

Among Duflo’s key findings:   microfinance, the poverty-reduction solution du jour, isn’t all it’s cracked up to be;  the value of foreign aid is greatly overblown;    entice parents to get their kids immunized by giving them free food.  All these findings are tested in carefully-controlled experiments. 

   Karlan  and Appel use psychology  to assess aid  initiatives .  They recommend “small fixes with outsized payoffs”: “commitment” savings accounts that make depositors accumulate a fixed amount before they can
withdraw;
well-side chlorine dispensers to purify water; paying parents to take kids for checkups; increasing the application rate to a microloan program by putting photos of  beautifulgirls on the brochure. 

  Kristof supplies another powerful example: Deworming. “Prof. Michael Kremer, a Harvard economist, helped pioneer randomized trials in antipoverty work. In the 1990s, Kremer began studying how to improve education in Africa, trying different approaches in randomly selected batches of schools.  One intervention he tried was deworming kids — and bingo! In much of the developing world, most kids have intestinal worms, leaving them sick, anemic and more likely to miss school. Deworming is very cheap (a pill costing a few pennies), and, in the experiment he did with Edward Miguel, it resulted in 25 percent less absenteeism. Even years later, the kids who had been randomly chosen to be dewormed were earning more money than other kids.  Kremer estimates that the cost of keeping a kid in school for an additional year by building schools or by subsidizing school uniforms is more than $100, while by deworming kids, the cost drops to $3.50. (In a pinch, kids can usually go to “school” in a church or mosque without a uniform.)”

    Bill Gates has put billions of his wealth dollars into health initiatives for the poor. He would do well to speak to
these researchers.  Why not apply the same standards to philanthropy that are used in scientific research?  The aid dollars would go much farther if we did.

 * Abhijit Banerjee  &  Esther Duflo,  Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty.  PublicAffairs (2011). 

** Dean Karlan and Jacob Appel . More Than Good Intentions: How a New Economics Is Helping to Solve Global Poverty.   Dutton (2011)

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