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Sunday, December 30, 2012

China's Experiments on Policy Reform

On what national governments should probably do before nationalizing its policies - How China implemented "experimental gradualism."
In 1978, the Communist Party’s 11th Congress broke with its ideology-based approach to policy making, in favor of a more pragmatic approach, which Deng Xiaoping famously dubbed the process of “feeling our way across the river.” At its core was the idea that public action should be based on evaluations of experiences with different policies: this is essentially what was described at the time as “the intellectual approach of seeking truth from facts.” In looking for facts, a high weight was put on demonstrable success in actual policy experiments on the ground. The evidence from local experiments in alternatives to collectivized farming was eventually instrumental in persuading even the old guard of the Party’s leadership that rural reforms could deliver higher food output. But the evidence had to be credible. A newly created research group did field work studying local experiments on the de-collectivization of farming using contracts with individual farmers. This helped to convince skeptical policy makers (many still imbued in Maoist ideology) of the merits of scaling up the local initiatives. The rural reforms that were then implemented nationally helped achieve probably the most dramatic reduction in the extent of poverty the world has yet seen. (Ravallion 2008, 2; references not included)...
Some of the experiments that proved extremely successful were: the household responsibility system, dual-track pricing, township- and-village enterprises, and special economic zones... What is striking is that no fewer than half of all national regulations in China in the early to mid-1980s had explicitly experimental status.
These are taken from Rodrik 2008, and the details are there. Note that this isn't necessarily about conducting rigorous randomized control trials, but simply adopting some form of experimental approach in policy making, seeing if some policy works perhaps at some localities first before implementing them nationally.

I am motivated to post this partially because I am somewhat concerned about the controversial Reproductive Health Act, which just passed with some controversy in the Philippines. It is a big win, in my opinion, given what I know about policies that affect women's health. But there does not seem to be any talk of evaluation. And it will be implemented in a large scale. Aren't we interested in whether it works not only in theory but also in practice?

Sunday, December 23, 2012

The Economic Lives of the Very Poor

I am reading this highly interesting and readable piece by Banerjee and Duflo in the Journal of Economic Perspectives. The extreme poor, it happens, do not appear as they may seem. The authors summarize data about those who live below the $1 per day poverty line from cross country surveys - how they spend their money, their living arrangements, what they do for a living, etc. 

Now here's one puzzle:
A common image of the extremely poor is that they have few real choices to make. Indeed, some people surely work as hard as they can—which may not be particularly hard, because they are underfed and weak and earn barely enough to cover their basic needs, which they always try to fulfill in the least expensive way... Yet the average person living at under $1 per day does not seem to put every available penny into buying more calories. Among our 13 countries, food typically represents from 56 to 78 percent of consumption among rural households, and 56 to 74 percent in urban areas. For the rural poor in Mexico, slightly less than half the budget (49.6 percent) is allocated to food. 
Of course, these people could be spending the rest of their money on other commodities they greatly need. Yet among the nonfood items that the poor spend significant amounts of money on, alcohol and tobacco show up prominently. The extremely poor in rural areas spent 4.1 percent of their budget on tobacco and alcohol in Papua New Guinea; 5.0 percent in Udaipur, India; 6.0 percent in Indonesia; and 8.1 percent in Mexico... 
Perhaps more surprisingly, spending on festivals is an important part of the budget for many extremely poor households. In Udaipur, over the course of the previous year, more than 99 percent of the extremely poor households spent money on a wedding, a funeral, or a religious festival.
So by choice, they appear not to spend money on what we traditionally think as "basic" needs. I wonder what this means for optimal policy using the "basic needs" approach.

Saturday, December 22, 2012

The priestly caste, Math Econ vs. the lower ranked Devlops

It's that time of the year to make fun of my chosen profession. From a published article in 1973, which is still somehow very true.
From the editor: Since many of our younger readers are, with the idealism so characteristic of contemporary youth, planning to launch themselves on a career of good deeds by going to live and work among the Econ, the editor felt that it would be desirable to invite an Econologist of some experience to write an account of this little known tribe. 
The Econ tribe occupies a vast territory in the far North... They are not without some genuine and sometimes even fierce attachment to their ancestral grounds, and their youth are brought up to feel contempt for the softer living in the warmer lands of their neighbors such as the Polscis and the Sociogs. Despite a common genetic heritage, relations with these tribes are strained -- the distrust and contempt that the average Econ feels for these neighbors being heartily reciprocated by the latter -- and social intercourse with them is inhibited by numerous taboos. 
...The Econ word for caste is "field." Caste is extremely important to the self-image and sense of identity of the Econ, and the adult male meeting a stranger will always introduce himself with the phrase "Such-and-such is my field."...The territorial connotation of "field" is somewhat entirely misleading for the castes do not live apart... In some cases, nearly every caste may be represented in a single dept. 
...The dominant feature which makes status relations among the Econ of unique interest to the serious student is the way that status is the way that status is tied to the manufacture of certain types of implements, called "modls." The status of the adult male is determined by his skill at making the "modl" of his field. The facts (a) that the Econ are highly status-motivated, (b) that status is only achieved by making "modls" and (c) that most of these "modls" seem to be of little or no practical use... 
...The priestly caste (the Math-Econ) for example, is a higher "field" than either Micro or Macro, while the Devlops just as definitely rank lower... The rise of the Math-econ seems to be associated with the previously noted trend among all the Econ towards more ornate, ceremonial modls, while the low rank of the Devlops is due to the fact that this caste, in recent times, has not strictly enforced the taboos against association with the Polscis, Sociogs, and other tribes.

Wednesday, December 19, 2012

Did Color-Coding Increase Car Consumption? Evidence from Mexico

Sounds familiar? We call it color-coding in the Philippines.
In 1989, the government of Mexico City introduced a program, Hoy No Circula, that bans most drivers from using their vehicles one week- day per week on the basis of the last digit of the vehicle’s license plate. This article measures the effect of the driving restrictions on air quality using high-frequency measures from monitoring stations. Across pol- lutants and specifications there is no evidence that the restrictions have improved air quality. Evidence from additional sources indicates that the restrictions led to an increase in the total number of vehicles in circulation as well as a change in composition toward high-emissions vehicles.
The paper is here by Lucas Davis. There doesn't seem to have been an effect on pollution or congestion. And just as I have suspected, with the implementation of color-coding in the Metro Manila, people just bought more cars. Perfect example of how people re-optimize and respond to incentives.

Sunday, October 28, 2012

Should Elementary Schools Have an Honors Class? Experimental Evidence

To the extent that students benefit from having higher-achieving peers, tracking students into separate classes by prior achievement could disadvantage low-achieving students while benefiting high-achieving students, thereby exacerbating inequality. On the other hand, tracking could potentially allow teachers to more closely match instruction to students’ needs, benefiting all students. This suggests that the impact of tracking may depend on teachers' incentives. 
...In 2005, 140 primary schools in western Kenya received funds to hire an extra grade one teacher. Of these schools, 121 had a single first-grade class, which they split into two sections, with one section taught by the new teacher. In 60 randomly selected schools, students were assigned to sections based on initial achievement. In the remaining 61 schools, students were randomly assigned to one of the two sections. 
...We find that tracking students by prior achievement raised scores for all students, even those assigned to lower achieving peers. On average, after 18 months, test scores were 0.14 standard deviations higher in tracking schools than in nontracking schools (0.18 standard deviations higher after controlling for baseline scores and other control variables). After controlling for the baseline scores, students in the top half of the preassignment distribution gained 0.19 standard deviations, and those in the bottom half gained 0.16 standard deviations. Students in all quantiles benefited from tracking.
From a recent paper by Duflo, Dupas, and Kremer (2011). Here's an ungated version. The paper is richer in its details and as expected from the reputation of these folks, the paper is full of clarity and insight, even though it would seem, after reading it, that of course it's kinda obvious (but it really is not).

Wednesday, October 24, 2012

The Globalization of Everything But Labor

...The principal way rich countries disadvantage the poor world is not through unfair trade, or through intrusive and ineffective aid, or by forcing repayments of debt. The primary policy pursued by every rich country is to prevent unskilled labor moving into their countries. And because unskilled labor is the primary asset of the poor world, it is hard to even imagine a policy more inimical to a poverty reduction agenda or to "pro-poor growth" than one limiting the demand for unskilled labor (and inducing labor-saving innovations). I asked this question: Why, when influential policymakers and advocates speak about "development," could we not hear a quartet, not just a trio; to fairer trade, better aid, and debt relief, add more access to rich countries for unskilled labor.
That is Lant Pritchett, in Let Their People Come. The book has been absolutely influential in shaping my research interests and agenda. And as I prepare to present some (very preliminary) research ideas on the topic in the next couple of days, I am rereading the book for inspiration, to remember why I got interested in the topic in the first place.

The empirical facts indeed are quite striking. World trade has remarkably opened up in the past decades, while immigration policy has become more and more restrictive.

Monday, October 1, 2012

The Answer to Hateful Speech is Not Repression, it is More Speech

Obama's UN speech on why the US didn't ban the outrageous Muslim video that sparked controversy across the world. Timely, as it relates to the recent Cybercrime law in the Philippines. The bit I liked most was this. (But please do read the whole thing as to avoid misunderstanding what he says)
I know there are some who ask why we don't just ban such a video. The answer is enshrined in our laws: our Constitution protects the right to practice free speech. Here in the United States, countless publications provoke offense. Like me, the majority of Americans are Christian, and yet we do not ban blasphemy against our most sacred beliefs. Moreover, as President of our country, and Commander-in-Chief of our military, I accept that people are going to call me awful things every day, and I will always defend their right to do so. Americans have fought and died around the globe to protect the right of all people to express their views – even views that we disagree with.

We do so not because we support hateful speech, but because our Founders understood that without such protections, the capacity of each individual to express their own views, and practice their own faith, may be threatened. We do so because in a diverse society, efforts to restrict speech can become a tool to silence critics, or oppress minorities. We do so because given the power of faith in our lives, and the passion that religious differences can inflame, the strongest weapon against hateful speech is not repression, it is more speech – the voices of tolerance that rally against bigotry and blasphemy, and lift up the values of understanding and mutual respect.
I liked this personal touch on how people call him awful things everyday. Heck, that's what public office is all about. Such weak public officials we have to create a law that in essence inhibits people like me who scrutinize and critique.

I'm still baffled at why the Palace signed this bill into law. Possibly incompetence.

Oh wait, could this be libel?

Wednesday, September 26, 2012

The World's Temperature from 1880 to the Present

Using Nasa temperature data.

A hat tip to ReflectionOfMe.

Monday, September 24, 2012

Why Do the Poor Prefer Prepaid? An Unlikely Theory

You know about how prepaid cellular cards are popular. Apparently, I hear now, they're also developing a product for prepaid electricity. Why are such products in demand? Why do the poor seem to shun buying in bulk and instead buy in tiny amounts, but for a higher price? Consider the sachet economy for shampoo in the Philippines. Have you ever wondered why this was somewhat strange? Before today, I thought the answer was obvious. The poor want to time their consumption. They want to have more control over when they need to use mobile technology, or electricity, and are willing to pay a premium for this convenience.

As I was conversing with a colleague today, another interesting explanation was brought to my attention. The poor usually share goods with the community, neighbors, and extended families. In these communities, one potential problem when you own a resource, say a cellphone, is that others free ride. Especially in tight knit communities, the peer pressure for you to share is strong that you actually are not able to consume your private resource optimally.

Buying prepaid is a way to limit other people's free-riding. Aside from limiting the monitoring problem, it's a credible and final way of being able to say, I have nothing more to share, sorry. And this arguably lessens the social pressure. And what's interesting is that people actually are willing to pay a premium for this type of service.

I thought this was brilliant. Okay, how do we translate this into a research project?

UPDATE: Note that my advisor pointed out that the most basic explanation for this is actually liquidity constraints. Why do the poor prefer to buy a single stick of a cigarette than a whole pack? They don't have enough money now to buy the whole pack and can't borrow from their future...

Friday, September 21, 2012

If the Data Would Speak on the Marcos Dictatorship

This is what it would say: A devastating -9.84% GDP per capita growth in 1984, followed by a 9.8% drop again in 1985.

And this:

Yes, I know, I know, correlation here between the Marcos regime and these drops does not necessarily mean causation. Some third factor might be responsible for both the regime and this fall. I could potentially control for these other factors, as any careful economist would do, I suppose.

But let's be honest here. Should I waste my time? In this case, it seems too obvious that it is not coincidence but that the latter part of the Marcos regime would dislodge our economy from its growth path by such a huge margin, it would take us until 2003, to get back on track from where we used to be in 1984. 19 years!

An economy usually grows upward at a steady pace, with some booms and busts - what we call the business cycle. Yes, recessions here and there, a great economy in between, but a steady trend upwards. But in this case, it's apparent it wasn't just a temporary shock; it was a big push downward from our growth trajectory that we never really fully recovered back to.

So to whoever is the revisionist out there, I don't know where you would get the facts. That is the legacy of the Marcos regime. This is what the data says.

An NGO Delivers a 1000% Increase in Income for Poor Workers

And they don't use aid. says Michael Clemens.
CITA is a matchmaker between farms and seasonal agricultural workers. The farms are in the United States; almost all of the workers are in Mexico. CITA brings them together and unleashes the vast economic power of labor mobility for development. 
I don’t use the word ‘vast’ lightly. CITA helps hard-working Mexican laborers legally raise their earnings by roughly 1,000%. (In Mexico they can make about US$10 per day; on U.S. farms they earn US$10 per hour.) There is no aid project I know of that can do that—not even close—in Mexico or anywhere else in the developing world.

Tuesday, September 18, 2012

What Do the Poor Say They Need?

As the Millenium Development Goals draw to a close on 2015, what should be the next set of global goals? Leo and Hoan Tram "ask" households of poor nations what they think in this paper. As I've not enough time to read the whole thing, I'll just present one of their more striking figures.

In sum, it's income. People say they need more of jobs, a stable source of income, and youth employment.

Not for the Philippines though, where people say they need governance.

UPDATE: Note what Jason Kerwin says on the comments below. For the Philippines, I may have erroneously said governance, when it seems like it is economy.

Hat tip to former boss, @mclem on twitter.

Saturday, September 15, 2012

A Gift of Time

What would people do if they were permanently and randomly given more hours in a day? Sleep? Work? Eat more? In A Gift of Time, Dan Hamermesh (aka "the Hammer") and coauthors take advantage of a natural experiment from Japan and Korea, exploiting the lowering of legislated working hours from 48 hours per week to 40, and 44 to 40 respectively. This allows them to figure out what people do with more time in their hands:
Using time-diaries from before and after these shocks, we predict the likelihood that an individual would have been affected by the reform. The direct effect on a newly-constrained worker was a substantial reduction in market time, with the freed-up time reallocated mostly to leisure and personal maintenance, and very slightly to household production.
It's one of the more entertaining presentations I've attended recently. Some of the interesting findings suggest that people watched more TV during weekends (obvious), while men spent more time grooming (at which point a Korean in the audience blurted "That totally makes sense!"). Reduction of market work hours resulted in increased leisure in Japan, while spousal non-work spillovers were minimal.

The policy was intended to combat over-working. At the end of the day, the big question of course is, are these people happier?

Thursday, September 13, 2012

On Over-encouraging Return Migrants to Be Entrepreneurs

From the latest report by the Secretary of Labor and Employment. For some time now, DOLE has been touting their P2 billion peso reintegration fund for migrants to encourage them to be entrepreneurs.
The DOLE had set up a P2 Billion Reintegration Fund to provide OFWs and their legal dependents a loan facility for enterprise development , in cooperation with the Land Bank of the Philippines, where a member can avail of a P300,000.00 to P2 million business loan.
This strikes me as such an odd use of resources. Usually, you would offer loan assistance to those who are credit constrained. But migrants, who have just finished their migration episode from abroad, are the exact opposite. They had just earned enough money. By all means, they're the ones who should be lending to start-ups. Offering lower rates to these people will encourage them to over-invest when they probably shouldn't be.

Not everyone is an entrepreneur. Perhaps in the Philippines, more people should be. But it is a very very risky business. This is my reaction to the latest craze that might leave one to think that everyone should be. By revealed preference, most people who have enough credit would actually prefer stable wage-earning jobs.

I'm not sure the 2billion peso reintegration fund is the best way to use that money. I had rather prefer them to use that to help return migrants find local employment here.

Wednesday, September 12, 2012

Do our Closest Friends Affect Our Voting Behavior: A 61 Million Person Experiment

Discovery Magazine reports an experiment conducted over Facebook during the 2010 US National Elections.
The vast majority of the users aged 18 and over (98 percent of them) saw a “social message” at the top of their News Feed, encouraging them to vote. It gave them a link to local polling places, and clickable button that said “I voted”. They could see how many people had clicked the button on a counter, and which of their friends had done so through a set of randomly selected profile pictures.
But the remaining 2 percent saw something different, thanks to a team of scientists, led by James Fowler from the University of California, San Diego. Half of them saw the same box, wording, button and counter, but without the pictures of their friends—this was the “informational message” group. The other half saw nothing—they were the “no message” group. 
By comparing the three groups, Fowler’s team showed that the messages mobilised people to express their desire to vote by clicking the button, and the social ones even spurred some to vote. These effects rippled through the network, affecting not just friends, but friends of friends. By linking the accounts to actual voting records, Fowler estimated that tens of thousands of votes eventually cast during the election were generated by this single Facebook message...
But the effects, though statistically significant, seem tiny
For each close friend who got the social message, a user’s odds of clicking “I Voted” went up by 0.099 percentage points; their odds of finding out about polling sites went up by 0.012 percentage points; and their odds of voting went up by 0.224 percentage points. The other “ordinary friends” increased the odds of clicking the button, but nothing else – they influence the smallest of behaviours, but not the more substantial ones. 
Gelman is sceptical about these figures. “They are measuring tinier effects on the order of one-tenth to one-hundredth of a percentage point,” he says. “That sounds like zero to me. Or, to put it another way, these effects are not zero, but they are on the same order of magnitude as other things in the air, such as recent news and political advertisements.”

The Key Question About the SinTax...

is probably not whether the tax decreases the consumption of cigarettes or alcohol but what goods consumers substitute for in lieu of these "sinful" goods. This behavioral response is central to any impacts we might see arise from such a policy. It's certainly plausible for instance that consumers substitute into consumption goods that are unhealthy as well like sodas, or junk food, in which case the positive health impacts may be overstated. But of course this is an empirical question, and can easily be figured out from surveys like the Family Income and Expenditures survey before and after the tax.

This is not saying I am against such a policy; in fact, I support it. I just hope we're mindful of the unintended consequences that may come about.

Monday, September 3, 2012

Personal Poverty Coaches For the Poor

At least this is what the newest poverty reduction experiment being run in Haiti is all about. It sounds a bit silly, to be honest, but I like the attitude of trying new things out, and testing whether it works or not.
Half of the commune’s 10,000 households are being assigned a “household development agent” — a neighbour who will work as a health educator, vaccinator, epidemiologist, financial analyst, social worker, scheduler and advocate all at the same time. With the agent’s help, a family will assess its needs and come up with a plan to make things better. 
“The idea is to forge a relationship from the get-go,” said Maryanne Sharp, an official at the World Bank, which is overseeing the $4 million project. “We want the family to say, ‘Yes, we own the plan and we will work on these objectives on this timetable.’  
“The other 5,000 households will function as a control group, continuing as they have, scrounging out a living in one of Haiti’s poorest and most isolated places. 
In two years, the families will be resurveyed and their children and houses re-examined. If those with agents are doing better, then the strategy of coaching people out of poverty may be expanded to the whole country.
On the other hand, I am quite skeptical. Of course they will find statistically significant effects of the program. But in order to convince me that this will be a viable program, they need to show that such it  is 1. viable (come on, how much would a personal assistant cost, their training, etc.?) and 2. are the effects, aside from being statistically significant, economically significant? There is a difference.

HT to Tyler Cowen at Marginal Revolution

Monday, August 27, 2012

Why Do We Keep Believing That Zero Migration is Optimal?

The Philippine Overseas Employment Agency (POEA) is usually an institution I hold in high regard, but lately I believe it is confused with its mission. A news report  claims it aims to halt the migration of domestic workers overseas.
The Philippines plans to phase out the migration of maids, nannies and other household workers over the next five years, according to a Manila newspaper. The programme to counter abuse of domestic workers overseas will affect about 180 countries, and is expected to be ready for implementation by the end of this year. The aim is to provide alternative jobs for household service workers, either in the Philippines or in approved countries overseas.
I understand the need to create better employment opportunities domestically, but this can be done WITHOUT barring the out-migration of domestic workers. Preventing household service workers from leaving does nothing in generating more jobs locally.

People willingly migrate because opportunities abroad are better than what they would have had if they stayed. I do not wish to discount that abuse happens, just like in any risky investment that one undertakes, but most migrants fully realize this, and yet they still undertake the risk, simply because the opportunity is better than the alternative - poverty. The solution is to find ways to prevent abuse, to keep migrants informed, and of course to continue trying to improve the local economy. Barring migration does nothing to aid in this. In fact, it may even exacerbate the problem as domestic workers will still continue to go abroad, albeit illegally, now that formal channels will be shut down.

I'm not sure why officials keep insisting that zero migration is optimal. For that matter, why should it be a proper goal of any institution? Poverty reduction should be the goal. And poverty reduction can happen whether the person stays in a country or out of it. Poverty reduction anyway, is not necessarily about place, as much as it is about people.

It is absurd to me. Perhaps internationally, it doesn't sound as much, but consider if someone barred you from migrating locally? Nobody would ever consider a policy of restricting Cebuanos from migrating to Manila in the name of developing its local economy. (By the way, this sounds very much like apartheid). Families would never restrict their children from leaving their households in the name of "we want this household to be better." But how come if we talk about zero migration with respect to international migration it suddenly makes sense? Why?

Tuesday, April 10, 2012

Thinking Small Rather Than Thinking Grand

I found this recent paper by Mark Rosensweig to be a scathing review of Duflo and Banerjee's new book on Poor Economics. It's a well-thought out critique of randomized control trials in development economics and I think I agree with it, even if it does not completely move my priors that rigorous impact studies are needed. We do a lot of these RCTs here in Michigan. But it's nice to keep this in mind, as a young and impressionable grad student. There are many important questions that can't be answered by an experiment. At the same time, one cannot always afford to think small. To quote Rosensweig:
The authors have a point of view: they believe that in the absence of grand schemes or radical transformations of government leadership that will promote the mass escape of people from poverty, there are small interventions that can be undertaken right now that will marginally improve the health, schooling and incomes of the poor. The poor will still be poor, but they can be made better-off. It fol- lows that, by studying the poor, we can equip ourselves, in small steps, to more effectively and intelligently help them, if not radically transform their lives. This is the “radical rethinking” of the subtitle, the turning away from a focus on deep institutional reforms about which we still know little to practical, on-the-ground, rigorously assessed direct assistance. Thinking small, rather than thinking grand. There are otherwise no new radical ideas. The basic analytical approach is very much in the mainstream of contemporary microeconomics, with the poor depicted as no different from the rich in terms of how their brains are wired or in what they can enjoy, given their limited constraints. Some of this conventional economic thinking, of course, might be seen as radical thoughts to NGOs and donors. 
By focusing on assisting the poor on the margin, of course, the book is missing analyses of circumstances where and when there was real poverty reduction—substantial increases in the number of people who become nonpoor. Indeed, it is elementary social science that it is not possible to under- stand how poverty can be eliminated, rather than made less onerous, by only studying the lives of those who have not escaped poverty, as here (there are a few anecdotal exceptions). Thus the book is missing, for example, a comprehensive analysis of the “green revolution” in India, which helped to raise the real wages of the poorest of the poor more than threefold over three decades, despite the fact that many of the interventions and studies cited were based in India. No intervention described in the book has anything near that effect on incomes. Studies of migration, occupational mobility, the growth of manufacturing sectors employing large numbers of formerly poor persons (e.g., the Bangladesh garment sector), major routes to the escape of poverty, are also absent. The book is about helping the poor via transfers, behavioral nudges and subventions, rather than about reducing the number of poor through economic development and growth.
The full paper is here.

Wednesday, April 4, 2012

Japan's Phillips Curve Looks Like Japan?!

Startling. And it's a 3-page paper published in the Journal of Money, Credit, and Banking as well.

HT to Hyejin.

Sunday, April 1, 2012

A Return on Investment of ~1000% for the Poor?

Yes, disbelief is the correct reaction but it does appear to exist. That is, if you find this latest working paper by Bryan, Chowdhury, and Mobarak convincing, as I have. What could it be, you may ask. Nope, it's not education. Not microfinance either. It's none of those traditional development initiatives one usually thinks of. It's investment on seasonal migration. Here's an abstract:
Pre-harvest lean seasons are widespread in the agrarian areas of Asia and Sub-Saharan Africa. Every year, these seasonal famines force millions of people to succumb to poverty and hunger. We randomly assign an $8.50 incentive to households in Bangladesh to out-migrate during the lean season, and document a set of striking facts. The incentive induces 22% of households to send a seasonal migrant, consumption at the origin increases by 30% (550-700 calories per person per day) for the family members of induced migrants, and follow-up data show that treated households continue to re-migrate at a higher rate after the incentive is removed. The migration rate is 10 percentage points higher in treatment areas a year later, and three years later it is still 8 percentage points higher.
The researchers offered an $8.50 incentive to migrate during the lean season to a nearby city and they document that among induced migrants, they earned $105 on average and saved and remitted more than half of that. That's a pretty darn large return on investment for the government. This suggests an innovative policy of offering cash transfers conditional on migration to populations in agrarian areas during lean seasons.

The big question of course is, if the returns are so large, why aren't farmers seasonally migrating already? The paper goes at length to answer this question. They try to downplay a credit constraint story (the initial costs to moving to a new area is costly, and farmers can't finance this because credit markets are missing) and focus instead on how risky it is to move and not know whether you could find employment. I'll leave readers to take a look at the paper for the details and judge accordingly.

Something I realized while reading this: we assume traditionally that development is something we bring to poor people, or that development is something poor people realize where they are at. But shouldn't development also be about poor people bringing themselves to development like through migration?

Note: The paper I link to does not seem to be the latest version.

Friday, March 30, 2012

Rainfall Insurance, anyone?

Do farmers produce more profitable crops if you insure them from risk? Just hot of the presses, this paper by Shawn Cole, Xavier Gine, and JamesVickery are the first (really, just the first?) to document evidence on how farmers shift towards more productive investments, cash crops, when you insure them from risk. While I have some minor qualms about the paper, I find their overall result quite significant and intuitive. I feel like saying, but of course! If you make people feel safe, the better they will be in trying out more risky but profitable enterprises.
Rainfall variation is an important source of risk, particularly in the developing world. We test whether the provision of insurance against this risk affects the investment and production decisions of small- and medium-scale farmers. Our empirical strategy involves randomized provision of rainfall insurance amongst a sample of landowner farmers in a semi-arid area of India. While we find little effect on total expenditures, increased insurance induces farmers to substitute production activities towards high-return but higher-risk cash crops, [castor and groundnut] consistent with theoretical predictions. Our results support the view that financial innovation may help ameliorate costs associated with weather variability and other types of risk.
Now the question that remains is why is it despite highly subsidized rates do farmers rarely adopt such insurance? The literature seems to draw a blank on that. It's also unclear whether it's cost effective for the government to provide such insurance.

Because of this paper, I'm increasingly thinking of typhoon insurance for the Philippines and how that would affect household behavior, and production activity. Hmmm.

I can't find online version of this paper.

Monday, March 26, 2012

When Social Pressure Can Lead to Bad Outcomes

Does social pressure to share resources lead to underinvestment? Economists are starting to turn to sociological theories to explain underdevelopment. I'm excited by this research agenda. As a first crack at the question, this new paper-in-progress by Jagielka and Ozier (I cannot find a copy online) uses a lab experiment to investigate the effect. People are willing to invest less in profitable investments if they know they need to share resources with their kin. Could such a theory explain why household outcomes are sub-optimal in the Philippines? To what extent could such a theory explain underinvestment in schooling, migration, etc.?
Several recent studies suggest that individuals living in poor, rural communities often feel obligated to make transfers to relatives and neighbors, and that successful families who do not make sufficient transfers to others can face harsh social sanctions (Platteau 2000, Hoff and Sen 2006, Comola and Fafchamps 2010). For example, Barr and Stein (2008) argue that Zimbabwean villagers punish households who are becoming better off than their neighbors by refusing to attend the funerals of members of those families. When social pressures to assist kin, and the sanctions against those who violate sharing norms, are strong enough, they can reduce incentives to make profitable investments and drive savings into lower-return technologies which are less observable to family members. Baland, Guirkinger, and Mali (2007) provide evidence of this type of behavior in Cameroon, where members of credit cooperatives take out loans to signal that they are liquidity constrained — even when they also hold substantial savings — in order to avoid sharing accumulated wealth with relatives.
...This paper measures the economic impacts of social pressures to share income with kin and neighbors in rural Kenyan villages. We conduct a lab experiment in which we randomly vary the observability of investment returns to test whether subjects reduce their income in order to keep it hidden. We find that women adopt an investment strategy that conceals the size of their initial endowment in the experiment, though that strategy reduces their expected earnings. This effect is largest among women with relatives attending the experiment, who invest 22 percent less when income is observable. At the village level, the extent to which experimental subjects engage in income hiding within the experiment is negatively associated with the probability of skilled employment and the value of household assets.

Friday, March 23, 2012

Should the World Bank Reduce Its Reliance on Economists?

No better time to pose this question, as Obama nominates an anthropologist and a non-native American, to take up the role as the next World Bank president.

Waylaid Dialectic quotes Lawrance Haddad who writes :
But for me the most transformative thing the Bank could do is to reduce its reliance on economists. 
Don’t get me wrong, economists are wonderful (I am one, hence the bias), but so too are political scientists, sociologists and anthropologists. Economics was severely damaged by the global financial crisis (“truth versus beauty” and all that). It is good that Justin Lin, the Bank’s chief economist, is reflecting so actively on economic assumptions and the role of the state, but other disciplines also have a lot to offer to better ground economics in reality and to offer new realities. 
There needs to be a better disciplinary balance throughout the Bank—in research and operations. The policy environment needed to incentivise “growth that we want rather than the growth we get”, for example, is not going to be achieved by an exclusive reliance on economists. We need to understand how the rules of the growth game are set and modified if we want growth that better reduces poverty, growth that includes those on the margins of society, growth that better avoids environmental externalities and growth that disincentivises corruption. These rules of the game are rooted in norms, culture, history and many “noneconomic” (i.e. human) behaviours and are best understood and evolved by coalitions of disciplines working together.
I agree, and I like the discussion on the blog, even as an (training) economist myself. The best papers I've read in economics in fact, at least those that have successfully piqued my interests, have drawn from blending political science, psychology, and even a little bit of sociology into economics. There are gains to increasing collaboration between fields, and I think this is a good way forward.

I don't however agree that it would necessarily be "transformative" for the World Bank. The differences between the social sciences are smaller than they seem. Last week I attended a talk by a sociologist, who was talking about human capital and compensating differentials. The week before, I attended a seminar by some political scientist, who was using satellite images of night lights to investigate whether pro-poor political parties are more able to provide electricity to their constituencies. He was using the same econometric methods economists use. But perhaps this is a biased view because this is how social science is done in Michigan?

Nevertheless, it would be interesting to see how the World Bank changes in the next years. The only thing I hope that doesn't is the recent emphasis on rigorous evaluation.

HT to Brett Keller on Twitter for this.

Thursday, March 22, 2012

Self Control and the Shape of Temptation

And what should it mean for the poor? Here's an excerpt from a recent paper by Banerjee and Mullainathan that I've been mulling over for the past few days.
The poor often behave as if they are very myopic. For example, they borrow repeatedly at extremely high interest rates which, at least under the standard model of consumption decision-making, suggests a strong preference for consuming today rather than tomorrow...
It is theoretically possible to explain these phenomena based on non-standard assumptions... but these alternative explanations do not seem to be particularly empirically plausible. For example, one could argue that the poor cannot cut back on consumption because they are against some sort of minimum consumption constraint. This, however, appears implausible given (a) that consumption actually shows substantial high frequency variation (Collins et. al. (2009)) and (b) the direct evidence (see Banerjee and Duflo (2007)) that even the very poor spend a signifcant part of their income on what are clearly not survival necessities (cigarettes, alcohol, expensive but not especially nutritious foods). Another argument is that the realized discount factor is a consequence of high mortality. The problem is that death rates for a very poor person at age 30 or 40 is not substantially different from that of someone richer. A very different alternative is to argue that the interest rates are not realized because of high default rates. In fact however default rates for both formal and informal institutions that actually lend to the poor are extremely low (Banerjee (2004)). Default rates for all the lenders in Aleemís study are below 10% and the median is less than 5%. This is also the shared experience of Microfinance Institutions.
In this paper, we provide an alternative approach... At the core of our model of self-control is the assumption that there are two types of goods - goods that generate utility both when consumed but also before they are consumed (i.e. in anticipation) and goods which, to a much greater extent, generate utility only at the point of consumption. We may take great pleasure from smoking a cigarette today or eating a whole box of donuts, but knowing that we will consume them in the future even though they are bad for us does not make us happy (and indeed, may even serve to get us depressed)...
The link to poverty within this framework comes from assuming that the fraction of the marginal dollar that is spent on temptation goods can depend on the level of consumption... Suppose that donuts that cost $0.25 form a visceral temptation that tempt all people equally. Giving in to this temptation, however, has different budgetary impacts for the rich and the poor. The $0.25 will be far more costly to someone living on $2 a day than to someone living on $30 a day. In other words, the same self-control problem is more consequential for the poor.
Self control is a psychological problem. The added insight is that, while the poor and rich may be subject to the same level of temptation, the temptation is more consequential for the poor because it involves a greater fraction of their income than their rich.

But what I do wonder about is (and we discussed this in class the other day) there are other control problems that are also important aside from self control. In poor societies, there is more temptation to share resources with neighbors and peers for instance. To what extent can we separate self control from other sorts of control problems like social pressure?

Wednesday, March 21, 2012

Today you... tomorrow me.

Here's a link to a random heartwarming story I picked up today from the internet, thanks to Jason Kerwin from Facebook. It's about hitch-hiking, Mexican immigrants, and pay-it-forward. And while I usually post excerpts here in my blog when I link to something, I'll let you guys click on the link and read it in full without preview. It's well worth the read.

The article reminded me of why I got interested in migration, immigration, and development research. It occurs to me that immigrants could potentially be the most discriminated group in modern society. Host countries usually accuse them of taking away jobs for natives. Sending countries, on the other hand, sometimes think of them as traitors, as not having enough love for one's nation, (as I discover in the Philippines.) They contribute to a brain-drain, as if people are items owned by the state that can be "drained."

I don't think people are aware that the issue is not much about race really as much as it is about where you were born. The two are different. Society has progressed enough that it is no longer acceptable to be hostile to someone with Mexican ancestry who lives, was born, and is a citizen of the US. But the same standard is not true for Mexicans who just happened to be born outside the border. It is acceptable, in fact even popular, to view these folk as undesirable elements of society to be deported. This inconsistency in our moral standards bothers me.

And while this story will probably not convince me to allow random strangers to hitch-hike, it's a nice thing to keep in the back of the mind for me when doing work on immigration in the future.

Sunday, March 18, 2012

Should Wizards Get Rid of Mudbloods?

"Nationalism" at its finest:
"Hindi naman kayo Pilipino, nagpapanggap lang kayong kayumanggi, hindi kayo dito lumaki, mahirap iyun" ("You’re not really Filipino, you're only pretending to be brown, you didn't grow up here; that's difficult") [Arnold Clavio comments].

Since their rise to fame, the Azkals [the Philippine soccer team] have faced these kinds of comments online. Some have pointed to the manner in which many of the players grew up abroad, often calling them half-breeds and demanding more 'local' players; calling for more 'pure' Filipinos, inferring or directly calling the others 'impure.' This distinction between 'pure' Filipinos, half-breeds and foreigners is probably more common than many people give it credit for.
Call me childish, but I am oddly reminded of Harry Potter and Mudbloods. Perhaps Filipinos, who had such an affinity for the book (myself included), will more easily see the offensiveness of such comments if we frame it from the perspective of a children's book? As one will recall, Mudblood "is a derogatory term for a Muggle-born wizard or witch; that is, individuals with no wizarding parents or grandparents. There does not appear to be any difference in the magical power of Muggle-borns compared to those who are pure-blood or half-blood, but those prejudiced against Muggle-borns consider them to be of "lower breeding" or worth, and undeserving of magic."

Should wizards be ridden of Mudbloods?

I hope we understand that as much as "nationalism" can be summoned to our aid, it can as well be easily used to exclude us. I've lived in the US as a non-citizen for the past five years. Lest we forget, around 10 million filipinos live abroad for work. One could only hope that we are not thought of impure elements of society to be rid off, that we are treated with respect, as we ought to be. I am fortunate enough never to have encountered derogatory slurs; the Americans I've encountered have been kind and accepting. Not everyone is as lucky.

Friday, March 16, 2012

A Better Way to Allocate Parking?

San Francisco is trying to shorten the hunt with an ambitious experiment that aims to make sure that there is always at least one empty parking spot available on every block that has meters. The program, which uses new technology and the law of supply and demand, raises the price of parking on the city’s most crowded blocks and lowers it on its emptiest blocks. While the new prices are still being phased in — the most expensive spots have risen to $4.50 an hour, but could reach $6 — preliminary data suggests that the change may be having a positive effect in some areas.
These sorts of urban policy experiments excite me and I wish that at some point in the future, we can convince city planners in Manila to experiment more to see what works.

It's been how many years now since we've been running this experiment in Metro Manila called "the color coding scheme." It sounds ridiculous to me that nobody has ever analyzed the causal effect of such a policy. Are there actually less cars on the road? Do the rich simply cope by buying more cars? Nobody knows.

HT to Marginal Revolution

Wednesday, March 14, 2012

Should Aid Money Be Used as A Prize for Health and Education?

On my must-read-list-the-next-time-I-do-not-need-to-read-5-other-papers-for-my-required-classes, a new paper by Ben Olken
This paper reports an experiment in over 3,000 Indonesian villages designed to test the role of performance incentives in improving the efficacy of aid programs. Villages in a randomly-chosen one-third of subdistricts received a block grant to improve 12 maternal and child health and education indicators, with the size of the subsequent year’s block grant depending on performance relative to other villages in the subdistrict. Villages in remaining subdistricts were randomly assigned to either an otherwise identical block grant program with no financial link to performance, or to a pure control group. We find that the incentivized villages performed better on health than the non-incentivized villages, particularly in less developed areas, but found no impact of incentives on education. We find no evidence of negative spillovers from the incentives to untargeted outcomes, and no evidence that villagers manipulated scores. The relative performance design was crucial in ensuring that incentives did not result in a net transfer of funds toward richer areas. Incentives led to what appear to be more efficient spending of block grants, and led to an increase in labor from health providers, who are partially paid fee-for-service, but not teachers. On net, between 50-75% of the total impact of the block grant program on health indicators can be attributed to the performance incentives.
Some key questions though: What's the mechanism through which we get this effect? Why is there no impact on education while there is on health? That's a bit strange.

Another research question lingering in my mind is, should government funding for public schools be paid, depending on performance?

Tuesday, March 13, 2012

Religious Sects as Political Brokers

Do religious sects redistribute political benefits? Does Inglesia ni Cristo "pay" its members?

Fellow Filipino, Nico Ravanilla, is presenting in the next Informal Development Seminar on the topic. I am excited. I know zero grad students over here in Michigan who work on political economy stuff. I also know zero professors here in the Econ Department who do papers on it.

Here is the abstract.
Absent genuine political parties, alternative political organizations arise to arbitrage on the voter-politician exchange of electoral support for distributive political benefits. Such organizations must be able to (1) resolve the collective action problem inherent in mobilizing an otherwise disinterested constituency and at the same time, (2) establish itself as a strategic swing vote that could credibly punish ex-post opportunism of politicians, thereby making sure that it gets access to distributive political benefits once the votes are delivered. I provide empirical evidence that a religious sect in the Philippines called Iglesia ni Cristo (INC) is able to do just that. First, I show that INC is able to mobilize its million strong voting members to “bloc vote”, that is, to vote for a full list of endorsed candidates from the president down to municipal councilors. Second, I show that winning INC-endorsed legislators exhibit a greater propensity for channeling redistributive benefits to localities with high density of INC members than their counterparts.

Monday, March 12, 2012

The Thousand Experts Program: China to Lure Experts

I've always thought the US will retain its position as the world's superpower as long as it retains its best minds and attracts foreign talent. The label is not as important as it seems really but oh will China be putting up one big fight.

From the New York Times
Late last year, the Chinese government started the Thousand Foreign Experts program, which is designed to attract up to 1,000 foreign academics and entrepreneurs over the next 10 years to help improve research and innovation.

It has already attracted more than 200 applicants from countries like the United States, Japan and Germany, according to a report in February by Xinhua, China’s official news agency.

The program is an extension of the Thousand Talent program, which started in 2008 as a way to attract experts, academics and entrepreneurs to China.

While 1,600 experts — more than half of them academics — came to China under that program, most were Chinese-born, said Mr. Wang, an adviser to the government on its talent policy.

Mr. Wang said the government wanted to further lift its intake of overseas experts, which led to the establishment of the latest program specifically aimed at foreigners.

Under the new program, successful candidates receive a subsidy of up to one million renminbi, or nearly $160,000, and scientific researchers can receive a research allowance worth three million to five million renminbi.
Is it just me, or don't these names of programs start to sound like movie titles?

Some of my classmates are actually from Peking University and Tsinghua University, and boy are they good in academics.

HT to Martina on Facebook

Thursday, March 8, 2012

Happiness and Income, through the Years

My Tuesdays are usually jam-packed, but attending this talk by Betsey Stevenson on happiness and income made it well-worth my decision to miss lunch. What do the data show about the relationship between happiness and income? I try to jot down here what I remember.

1970s: The Easterlin Paradox. Within countries, it is found that richer people have higher subjective well-being than poorer folk. Between countries, income is uncorrelated with happiness. The data however give very imprecise estimates, due to the low number of observations. But the conclusion: relative income is what matters. Reducing income inequality could increase happiness but it seems like making everyone richer has no effect. Possible policy implications: Economic growth is not worth pursuing as a goal.

1990s: Satiation Point. Income is linearly related to happiness between and within countries, but there comes a point when additional income stops contributing to happiness. The theory is intuitive. But, there is actually no existing empirical evidence for the claim.

2000s: As more survey and time series data come in, it can be shown that subjective well-being is linearly related to log income. That is, as income rises, happiness does too, but less so for the richer guys/countries than the poor. But again, the evidence is limited.

Her paper is here.

Some interesting bits I learned about well-being surveys: if you ask a person a question related to politics in a survey, the lower is his rating of his subjective well-being. If you ask a person a question on politics then subsequently ask 20 unrelated questions before asking about his well-being, he still would have a very low rating of his happiness. It takes a long time for people to get over being asked a question on politics!

Wednesday, March 7, 2012

How Easterly Would Not Lead the World Bank

In case you've missed it, here's an excerpt from World Bank renegade Bill Easterly's satirical article in Foreign Policy.
I would not lead the World Bank by assembling an expert task force of my fellow social scientists, natural scientists, and random unemployed politicians. I would not ask such a well-qualified expert task force to answer the question "What must we do to end world poverty?" -- especially if we forget to answer the question "Who put us in charge?" 
I would not lead the World Bank to ever use the words "civil society." I would not emulate my deservedly respected non-predecessor as World Bank president by giving a speech on the Arab Spring without using the word "democracy," even in a purely descriptive sense. I could not possibly attain a remarkable record of five years of speeches without ever using the word d_m_cr_cy at all. 
I would not appoint U.S.-educated elites vetted by their autocratic home governments to represent the underrepresented peoples of the world. I would not negotiate the contents of World Bank reports with governments in either the West or the Rest, except possibly for correcting typos. I would not lead the World Bank by perpetuating the technocratic illusion that development is something "we" do to "them." I would not ignore the rights of "them." If the New York Times should happen to report on the front page that a World Bank-financed project torched the homes and crops of Ugandan farmers, I would not stonewall the investigation for the next 165 days, 4 hours, 37 minutes, and 20 seconds up to now.
In contrast, here is Jeff Sachs in his bid for the WB presidency.

Monday, March 5, 2012

Why NOT to go to Grad School

For those still unsure, here's an exhaustive list of 100 reasons why not to go to grad school. An honest assessment, I should say. Some points I disagree on, like that the smarter people are elsewhere. Some apply less to economists. For instance, I've never heard of an unemployed PhD in economics. To some extent, grad school warps your mind to think that the only acceptable position after is an academic post, but there seems to be many non-academic careers out there. And with a premium these days on people who can analyze large chunks of data, I don't think there is an oversupply.

Here's the list on Should you decide to go anyway.

I went anyway. That says something about my preferences.

HT to Fan Fei on FB.

Sunday, March 4, 2012

Direct Cash Transfers to the Poor: Why not Do it for Mining Receipts?

Here's a proposal I have not heard: What if, for all areas where the government allows mining, the indigenous communities get ALL the tax receipts from the activity? No need to course the money through LGUs. No need for the national government to think of elaborate plans. Let us bypass these unnecessary middle men.

The underlying theory, similar to the one backing conditional cash transfers in education,  is straightforward. Households know more than anyone else how best to develop themselves. They may migrate in response to mining activities in their area. Or perhaps they may invest more in their human capital. They may buy a car, who knows. The point is that what they decide to do with the money would be better than whatever program the government comes up with. Sure, there is the concern that these households may spend the additional income on what people think are wasteful consumption -- the worst case scenario. But it's better for that to happen than let the government itself be wasteful. In fact, there is reason to believe they pocket the money anyway. This happens in the presence of weak institutions. In this case, better to trust households than the government.

A direct cash transfer to indigenous communities is transparent and empowering. It may work. A number of countries have tried the approach, not to mining, but to different resources. Since the 1980s, Alaskan residents have received cash transfers in the form of dividend payments from the interest earned by Alaska’s Permanent Fund, a savings fund set up by revenues from the state’s oil industry. Recently, Mongolia and Bolivia both have each tried variations to this approach, linking cash transfers to revenues from their natural resources -- gold for Mongolia and natural gas for Bolivia. Todd Moss here from the Center for Global Development makes a good argument for cash transfers for oil money. Shouldn't we try this out for our mines?

Of course, what works in theory does not mean it should work in practice. What works for other countries does not mean it would work for our country. But why not test it? Have the government run an experiment. Ban mining in some random subset of villages; allow mining in a "treatement" group. Then in some other subset, run this cash transfer idea. Then see which one works best for households. Surely this can inform discussion. The mining industry could get behind this. Running this experiment is better than implementing a policy blind on what its effects are.

Note: I am not advocating for zero regulation. Responsible regulation of course is ncessary.

Saturday, February 25, 2012

If Teacher Performance Rankings Are Released to the Public

What would be the effect? New York City public schools are about to find out.
After a long legal battle and amid much anguish by teachers and other educators, the New York City Education Department released individual performance rankings of 18,000 public school teachers on Friday, while admonishing the news media not to use the scores to label or pillory teachers.

The reports, which name teachers as well as their schools, rank teachers based on their students’ gains on the state’s math and English exams over five years and up until the 2009-10 school year. The city released the reports after the United Federation of Teachers exhausted all legal remedies to block their public disclosure. 
This should make for a nice natural experiment, doesn't it? Tell me if I'm wrong but standard economic theory would predict that this should lead to better outcomes. Making teacher performance rankings public reduces information asymmetry between schools and teachers, between parents and teachers so that both parties can match up more efficiently. But what are the unintended consequences? I am unfamiliar with the literature.

The question seems relevant, now that the world is moving towards open data. Should we publish performance rankings of teachers? What about information about their salaries? My university does that, as well as, Berkeley, I hear. What about the state of liabilities and assets of government officials, the subject of increasing interest in Manila? What are the effect of such policies?

Friday, February 24, 2012

Apple IS the Stock Market

From the NYTimes
Apple, the world’s biggest company by market capitalization, fueled the ascent. The growth rate of the S.& P. 500 for the fourth quarter of 2011 was 5.9 percent compared with the quarter a year ago, and if Apple were removed from the equation, that number would drop to 2.8 percent, said John Butters, an earnings analyst at FactSet Research. Apple, which closed Friday at $522.41, is up 176 percent since June 2008.
To my finance friends, so how common is this, that the growth is fueled by only one company?

Thursday, February 23, 2012

Airline Taxes: Will It Still Be More Fun in the Philippines?

Air France-KLM couldn’t wait for Manila’s promises. The European airline discontinued its Amsterdam-Manila route starting April this year as earlier announced, after complaining of repressive taxes here in the Philippines. 
KLM had pleaded several times with the government of President Benigno Aquino III to drop the 3-percent common carriers tax and the 2.5-percent gross billings tax on cargo and passenger revenues originating in the country. Aquino was aware of KLM’s protestations and ordered Transport Secretary Manuel Roxas last year to ask the airline to reconsider its plan to stop offering the country’s remaining direct flights to Europe amid high Philippine taxes and fees. The Dutch airline, prior to canceling the direct Manila-Amsterdam route, reduced its daily flights to Amsterdam from Manila to six times a week starting Nov. 1 last year. KLM made the decision after government’s refusal to offer relief to international carriers. 
Higher taxes and the 12-percent value-added tax on crew accommodations starting Nov. 1 last year have made the direct flight service to Manila less attractive to KLM.
The full article is here.

Oh and about that 1450 pesos of airport service fee that you have to pay before an international flight? That's pretty nasty as well.

I don't mean to be negative. But this just goes to show how good policy might be more important than any ad campaign. At some point in time, I feel like there should be a debate about optimal tax policy in the Philippines. We just don't have those.

via John Nye at Twitter.

Sunday, February 19, 2012

What if Teacher's Pay was Pegged on Student Performance?

Karthik Muralidharan actually runs that 5 year experiment.
We present results from a five-year long randomized evaluation of group and individual teacher performance pay programs implemented across a large representative sample of government-run rural primary schools in the Indian state of Andhra Pradesh. We find consistently positive and significant impacts of the individual teacher incentive program on student learning outcomes across all durations of program exposure. Students who completed their full five years of primary school under the program performed significantly better than those in control schools by 0.54 and 0.35 standard deviations in math and language tests respectively. These students also scored 0.52 and 0.3 standard deviations higher in science and social studies tests even though there were no incentives on these subjects. The group teacher incentive program also had positive (and mostly significant) effects on student test scores, but the effect sizes were always smaller than that of the individual incentive program, and were not significant at the end of primary school for the cohort exposed to the program for five year.
Welcome to the world where governments are open to experimental policy. If we do not experiment, then we will never learn.

But now I see that the problem in such programs will be the incentive of teachers to cheat, which I do not think this evaluation actually addresses.

Shit Happens: The Economist Version

This is excellent.

Alternative careers I can do if I don't make it as an economist, stand up comedy. He really does have a PhD in economics.

HT to Tim Hartford

Saturday, February 18, 2012

A World Without Borders

Michael Clemens writes why a world without borders makes economic sense.
The world impoverishes itself much more through blocking international migration than any other single class of international policy... 
I document that remarkable fact in a new research paper. Large numbers of people wish to move permanently to another country – more than 40% of adults in the poorest quarter of nations. But most of them are either ineligible for any form of legal movement or face waiting lists of a decade or more. Those giant walls are a human creation, but cause more than just human harm: they hobble the global economy, costing the world roughly half its potential economic product. 
The reason migration packs such economic punch is both simple and mysterious: a worker's economic productivity depends much more on location than skill. A taxi driver in Ethiopia's capital, no matter how talented and industrious, cannot earn more than a few thousand dollars a year. The same person doing the same job in New York City can easily earn $35,000 a year. The reason people will pay him that much is that his driving adds more than $35,000 of value to the New York economy, more value than his actions can add to the Ethiopian economy.
The biggest gains to be had are where there are the biggest differences. And I cannot think of where there is greater disparity to exploit as to the difference between the wages of those who live in developed countries and developing economies.

Saturday, February 11, 2012

Why low-income parents look like worse parents

Behavioral economists chime in:
We know children born to low-income families do poorly on average. And one culprit seems to be the behavior of low-income parents 
While there is agreement on the behavior, there is little agreement on why. Why are low-income parents not giving their children as much attention, help and encouragement as they need? Different ends of the political spectrum point in different directions. The left tends to see a lack of parenting skills. They look for solutions that emphasize improving these skills. The right tends to see more personal failures. They look for solutions that emphasize getting parents to take more responsibility.... 
When cash is tight, that feeling you have when that deadline was looming, becomes a constant mental state. Well-off people have the luxury of freedom of mind. Their psychic resources are reserved for “difficult,” “important” things that have a big impact on their well- being in the long run. But those with less income are not as fortunate. They have the same (limited) capacity for self-control and attention – but are forced to expend a large fraction of it on dealing with the ups and downs of everyday life. Simply managing the basics of life uses psychic resources. This leaves less psychic resources for the important things in life. Part of the mind is constantly fretting about putting food on the table. Put in this light, is it any surprise that low-income parents look like worse parents?
It's a good read throughout and intuitive. What I'm wondering is, is this based on some rigorous academic study?

Wednesday, February 8, 2012

Freedom of Information Requests via Twitter

While the Philippines contemplates [or has stopped contemplating], the merits of instituting a Freedom of Information Act (FOIA), the UK rules that it will accept FOIA requests from citizens via Twitter.
Public authorities that use Twitter and other social networking sites must recognise that, like any other communication channel, they can be used to submit freedom of information requests provided the requester includes their real name, an address for correspondence and a description of the information requested,” the ICO spokesman said. “Whilst Twitter may not be the most effective channel for submitting an FOI request, it is important that authorities are setup to handle requests received in this way.
We are clearly being left behind by the times.

Tuesday, February 7, 2012

Golden Eagle and the Key to Grad School Admissions

EconJeff writes about the sad fact about graduate school admissions, at least for Economics. Do your statements of purpose matter?
I read through them all and managed to narrow down the choice set to about 20 strong applications. At that point, I essentially randomized because that was no more or less arbitrary than any other scheme I might have used given the extreme multi-dimensionality of the choice problem. So, I picked the applicant who said in his personal statement that his friends called him "Golden Eagle" and the one who talked in his personal statement about playing Dungeons and Dragons. I kind of intended to follow up on them to see how they did, but I lost track once I left Maryland.
But how can you blame him. It's a very competitive bunch, these people who apply to Econ PhDs. Most would have perfected the math portion of the GREs. Almost all would be top students from places they're coming from. I can attest to this, knowing about the backgrounds of students in my cohort. So how could one choose between the super top student versus the next super top student?

Flip a coin.

Monday, February 6, 2012

The Social Network Effect on Insurance Take-up

From one of the job candidates who presented here, Jing Cai from Berkeley. Her puzzle: why is there sub-optimal take-up on weather insurance products in rural China, despite heavy government subsidies? Well maybe because friends are not using it:
Using data from a two-year randomized experiment in rural China, this paper studies the influence of social networks on the decision to adopt a new weather insurance product and the mechanisms through which social networks operate. In the first year, I provided financial education to a random subset of farmers and found a large social network effect on insurance take-up: for untreated farmers, having an additional friend receiving financial education raises take-up by almost half as much as obtaining financial education directly, a spillover effect equivalent to offering a 12% reduction in the average insurance premium. By varying the information available to subjects about their peers’ take-up decisions and using randomized default options, I show that the positive social network effect is not driven by scale effects, imitation, or informal risk-sharing, but instead by the diffusion of insurance knowledge. One year later, social networks continue to affect insurance demand: observing an above-median share of friends receiving payouts increases insurance take-up at a rate equivalent to about 50% of the impact of receiving payouts directly. I also find that social network effects are larger in villages where households are more strongly connected, and when the people who receive financial education first are more central in the social network.
Of all the job talks I've attended so far, her paper is my favorite. It's crazy grad students these days are able to manage such projects of large scale. She randomized between 185 villages, and then between 5300 households within villages, and then some. Impressive. I can only imagine the logistical headache that must have been.

I take pleasure in attending these job talks. It's a rare opportunity to see everyone, the whole faculty, in one room, in full form. But scouting the competition from other schools is beneficial as well. I myself would need to do a job talk someday. And if you've ever been in one, it's not for the faint hearted, especially when the claws of the economics faculty are out.

Wednesday, February 1, 2012

Why Google, why?

I hate to say this, but my favorite company is starting to delineate borders on the internet. Unlike.
At some point “over the coming weeks,” Google’s Blogger will begin redirecting users to country-specific domain names — think in France rather than — to avoid universally removing content that would not be tolerated in specific jurisdictions. 
Readers will be redirected to sites with their own country’s domain name when they try to visit blogs recognized as foreign, as determined by their IP addresses.

Tuesday, January 31, 2012

The Pay Per Tweet

This one's from James Choi's blog, which is a delight to follow.
The weirdest thing about the rumor that Kim Kardashian gets paid $10,000 for a Twitter endorsement is that it’s true. ...  
The pay rate for endorsing companies like Old Navy, Toyota, Best Buy, and American Airlines is determined by the size of a celeb’s following and how that group responds to his tweets with shares and retweets. On that sliding scale, Snoop Dogg (6.3 million followers) is in the top tier of payments, on the upside of $8,000 apiece, while Paula Abdul (2.2 million followers) falls somewhere in the middle, in the $5,000-each range, and Whitney Port (800,000 followers) falls in the bottom tier, making around $2,500 per tweet. But there are outliers.
When introduced self-destructing Charlie Sheen to Twitter, he was paid about $50,000 per tweet. ...
Of course Charlie didn’t write those tweets himself. No celebrity does. Instead, they’re composed by hungry young tweet ghostwriters whose job it is to broadcast a celebrity’s voice in 140 characters.
We all get riled up about how high bankers get paid, but how come I've never heard of anyone complain about celebrities and basketball stars?

Do we believe people are paid their productivities? Standard models in economics say that people are, given the usual assumptions of perfect information, no market power, etc. If we don't believe people are paid what their worth, what is it that doesn't hold?

Sunday, January 29, 2012

Digicams Reduce Election Fraud in Afghanistan

An interesting new paper by Michael Callen at UCSD:
Elections in developing countries commonly fail to deliver accountability because of manipulation, often involving collusion between corrupt election officials and political candidates. We report the results of an experimental evaluation of Quick Count Photo Capture---a monitoring technology designed to detect the illegal sale of votes by corrupt election officials to candidates---carried out in 471 polling centers across Afghanistan during the 2010 parliamentary elections. The intervention reduced vote counts by 25% for the candidate most likely to be buying votes and reduced the stealing of election materials by about 60%.
Link from the Center for Global Development. Wish I was still working there so that I could attend this event.

Lessons for the Philippines?

Wednesday, January 25, 2012

How Much is a Year of School Worth?

Ah yes. No other topic in the field has launched a thousand regressions -- the theme of my last two weeks.  For some reason, my labor and development class have separately arrived at this topic at the same time without any coordination. How much does an additional year of school increase a person's income, holding everything else constant? That is, what is the returns to education?

Estimates vary but it's around 7% for the US. That is, an additional year of schooling increases earnings by 7% on average. The number is higher for developing countries. In Brazil, it's over 10%, according to a paper we were just discussing by Lam and Schoeni (Lam is my professor). Psacharopoulos pegs it at 11.2% for low income countries and 11.7% for lower middle income countries like the Philippines. He has a nice paper comparing the rate of returns in different places here.

Interestingly, Duflo provides evidence (in a really nifty paper [I can't link to the published version]) that the estimates are probably overstated. She makes use of a large scale increase in school construction in Indonesia as a policy experiment. Nonetheless she finds a rate of return in the range of 6.8-10.6%.

I'm wondering whether anyone has done work estimating it lately for the Philippines. This one's quite dated. I assume it could be tricky given that educated people have a higher unemployment rate than less educated ones. Plus, international migration is nontrivial.

As for me, I am personally left to reflect on the question, what is the rate of return I get from getting a PhD? I have a sinking feeling it's very small. It doesn't matter. I have other things I maximize on.

Tuesday, January 24, 2012

Are Institutions Insignificant?

Or in other words, is President Aquino's emphasis on "kung walang corrupt, walang mahirap" overstated? Francis Fukuyama weighs in:
Over the past decade the mantra in both development studies and comparative politics has been “institutions matter”—that is, you aren’t going to get economic growth or other human development objectives in the absence of institutions like rule of law, transparent and accountable governments, low levels of corruption, and the like. 
The empirical basis for this assertion is actually much weaker than many of us would like to think, however. Plenty of countries, beginning with China, have grown very rapidly over the past generation in the absence of what is now called “good governance.” Indeed, the US and Britain charted the industrial revolution with governments that were substantially more corrupt and less capable than they are today. 
...The Bank of England became independent only in 1998; there is no British constitutional court and therefore no judicial checks on legislative power; not just 2/3s but a fifty percent plus one majority in the House of Commons is sufficient to overturn any law in the land, including any protecting England’s fabled press freedoms.
Whenever I read articles like this, I wonder -- what exactly do people mean when they say "institutions"? Do we know what it is? How do we measure it?

Perhaps the very reason there is scant empirical evidence on the effect of good institutions on development is because it is simply poorly defined, or people just can't agree on what it means and therefore talk over each other's heads. Fukuyama here rebuts by presenting himself, scant empirical evidence.

I do suspect sometimes that we what we mean by "institutions" is simply everything else that we can't explain or understand -- that is, the residual. Any thoughts on this from someone more knowledgeable?

Friday, January 20, 2012

The Twitter Democracy that is Sweden

And here you thought the Philippines' "More Fun in the Philippines" campaign topped them all.
In December, officials from the country's tourism board decided that they would hand over the reins of their @sweden Twitter account to a different citizen each week.  
So far, the project, which has been called "the world's most democratic Twitter account," has featured tweets from a female priest, an advertising executive and an organic sheep farmer, Reuters reported.  
This week, Sweden's tweets are from Hanna, "just your average lesbian truck driver."
"Gosh, I really enjoy being @sweden," tweeted Hanna. "They'll have to grab the account out of my dying hands.
I like the Swedes more and more. Open, diverse, and democratic, But I wonder how they fare on migration policy.

Hat tip to Marginal Revolution. The full article is from Global Post.

Wednesday, January 18, 2012

Are CCTs encouraging poor children to attend terrible schools?

In case you've missed it, Lant Pritchett and Berk Ozler have been going at it in the blogosphere on conditional cash transfers (CCTs). Here's the first post with Pritchett questioning whether CCTs raise enrollment but force poor children into terrible schools.
Take Uttar Pradesh in 2010. By the end of lower primary school (grade 5) only one in four children could divide. Even by grade 8, the end of upper primary only 56 percent could. Similarly, by grade 5 only 44 percent could read a level 2 paragraph and by grade 8 still only 77.6 could. A large plurality of children, even of those that had persisted and been promoted through eight full grades or primary school—roughly 8000 hours of available total instruction—were either illiterate or innumerate or both...
Suppose you are a child from a poor household approaching adolescence in Uttar Pradesh who has struggled through years of schooling without learning anything, been promoted from year to year with no attention to your actual learning, perhaps even regularly beaten or threatened by teachers. You might consider dropping out of this “fierce” thing called school. 
But wait. The development technocracy with its latest rigorous research methods and can-do, expansion of “what works” attitude has the solution to your drop-out problem: they will threaten your mother. This is a wildly new popular class of programs called “conditional cash transfers” which has spread from its origins in Mexico and Brazil to over 30 countries.
Also, have economists got themselves confused about the "conditional" on  "conditional cash transfers?" Berk Ozler provides an excellent reply.

What are the learning effects of CCTs, aside from their enrollment effects? It does seem that this is a good research question to pursue moving forward. For now, I am a bit sympathetic to Ozler's argument but only because Pritchett's claim needs more evidence aside from an anecdote.

Ah, if only these sort of fierce debates also appeared in our politics. This Corona impeachment is a historical event for our country but how I wish we also debated our social programs/policies with as much gusto and careful presentation of evidence and analysis.

Wednesday, January 11, 2012

Intelligence is irrelevant

The people who fail to graduate from MIT, fail because they come in, encounter problems that are harder than anything they’ve had to do before, and not knowing how to look for help or how to go about wrestling those problems, burn out. 
The students who are successful, by contrast, look at that challenge, wrestle with feelings of inadequacy and stupidity, and then begin to take steps hiking that mountain, knowing that bruised pride is a small price to pay for getting to see the view from the top. They ask for help, they acknowledge their inadequacies. They don’t blame their lack of intelligence, they blame their lack of motivation. 
During my freshman year, I almost failed out of differential equations. I was able to recover and go on to be very successful in my studies. When I was a senior, I would sit down with the freshmen in my dorm and show them the same things that had been shown to me, and I would watch them struggle with the same feelings, and overcome them. By the time I graduated MIT, I had become the person I looked up to when I first got in. 
You feel like you are burnt out or that you are on the verge of burning out, but in reality you are on the verge of deciding whether or not you will burn out. It’s scary to acknowledge that it’s a decision because it puts the onus on you to to do something about it, but it’s empowering because it means there is something you can do about it. 
So do it.
I got this from a post by Ben Casnocha. It's apparently from a Reddit thread of a HS student asking for advice about applying to MIT.

Monday, January 9, 2012

India became poorer because it had become richer?

Paradoxically, one of the main reasons that India (and the rest of the world) became poorer was because India had grown less poor.
That is Angus Deaton in his presidential address at the 2010 AEA meetings critiquing the recent revisions to the international poverty line that moved it from $1 per day to $1.25 per day. The change increased the number of poor people by half a billion people.

The international poverty line is calculated by averaging the national poverty lines of the 15 most poor countries. India used to be in this group. But when it became richer, it graduated from this group, raising the poverty line.

I am studying this incredibly complicated business of trying to count the global poor. It seems like a dry topic but it surprises me how there are still many debates even about such a basic issue of counting. It is important of course that we continue to talk about this: we usually cannot change what we cannot count very well.

I am turning sympathetic to Deaton's case that maybe we should just ask people if they think they're poor.